Details are in the  Attached document 
Also I have attached the book for reference.
As stated in Chapter 6 of the text, there are many barriers that candidates face and the value of a diverse workforce is underestimated. In Chapter 1, we learn about the effects and importance of environmental factors on Human Resources (HR) practices; in this assignment, you are asked to explore and deconstruct Diversity within an organization of your choice.

Choose any organization and complete the following:
· What is your personal definition of Diversity – use credible sources to back up your answer?
· Research and summarize the organization’s Diversity policies and practices.
· Analyze the challenges and opportunities of these practices on its recruitment, selection, and retention practices.
· How can the organization respond to the challenges and opportunities? 
· include at least 4 concepts from the course material, in addition to Diversity.

Note: The assignment should be between 4 to 7 pages in length, double-spaced, excluding supplemental pages, e.g., cover page, table of contents, references.

I will attach the book as well so that you can add some course concepts. Especially in the last question

BELCOURT | PODOLSKY

STRATEGIC
HUMAN RESOURCES

PLANNING
SEVENTH EDITION

B E L C O U R T
P O D O L S K Y

STRATEGIC HUM
AN RESOURCES PLANNING

SEVENTH
EDITION

NELSON SERIES IN
HUMAN RESOURCES MANAGEMENTHRM

STRATEGIC HUMAN RESOURCES PLANNING
SEVENTH EDITION

Part of the market-leading series in Human Resources Management, this new seventh edition of
Strategic Human Resources Planning has been updated to reflect current examples and research.

The Nelson Series in Human Resources Management is the best opportunity for students and
practitioners to access a complete set of HRM products. The series provides quick access to information
across many HRM disciplines and over the years has become an essential source of information,
meeting the requirements for professional designation from the CPHR Canada and the provincial HR
associations. This one-stop resource will prove useful for anyone looking for solutions for the effective
management of people.

Other titles in the Nelson Series in Human Resources Management:
Industrial Relations in Canada, Robert Hebdon, Travor C. Brown
Recruitment and Selection in Canada, Victor M. Catano, Willi H. Wiesner,
Rick D. Hackett
Management of Occupational Health and Safety, E. Kevin Kelloway, Lori Francis,
Bernadette Gatien
Managing Performance through Training and Development, Alan M. Saks,
Robert R. Haccoun
Strategic Compensation in Canada, Richard J. Long, Parbudyal Singh

nelson.com

9 780176 798086

ISBN-10: 0-17-679808-0
ISBN-13: 978-0-17-679808-6

STRATEGIC HUMAN RESOURCES
PLANNING

SEVENTH EDITION

HRM NELSON SERIES IN HUMAN RESOURCES MANAGEMENT

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MONICA BELCOURT
SCHOOL OF HUMAN RESOURCE

MANAGEMENT, FACULTY OF LIBERAL
ARTS AND PROFESSIONAL STUDIES, YORK

UNIVERSITY

MARK PODOLSKY
SCHOOL OF HUMAN RESOURCE MANAGEMENT,

FACULTY OF LIBERAL ARTS AND PROFESSIONAL
STUDIES, YORK UNIVERSITY

STRATEGIC HUMAN RESOURCES
PLANNING

SEVENTH EDITION

HRM NELSON SERIES IN HUMAN RESOURCES MANAGEMENT

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Strategic Human Resources
Planning, Seventh Edition

by Monica Belcourt and
Mark Podolsky

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Solutions:
Claudine O’Donnell

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Library and Archives Canada
Cataloguing in Publication Data

Belcourt, Monica, author Strategic
human resources planning / Monica
Belcourt, Mark Podolsky. — Seventh
edition.

Issued in print and electronic
formats. ISBN 978-0-17-679808-6
(hardcover).— ISBN 978-0-
17-685680-9 (PDF)

1. Manpower planning—Textbooks.
2. Personnel management—

Textbooks.
3. Strategic planning—Textbooks.
4. Textbooks. I. Podolsky, Mark,

author II. Title.

HF5549.5.M3B45 2018
658.3’01
C2018-901919-0
C2018-901920-4

ISBN-13: 978-0-17-679808-6
ISBN-10: 0-17-679808-0

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To Zabeen Hirji, formerly Executive Vice-President and Chief Human Resources Officer,
RBC and currently Global Advisor, Future of Work, Deloitte for her strategic work in HRM.

M.B.

To Mary Jo, Jackson, and Claire, for the joy that you bring to my life.
M.P.

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NEL vii

BRIEF CONTENTS

About the Series xxi

About the Authors xxii

Preface xxiii

Acknowledgments xxix

Chapter 1 Strategic Management 1

Chapter 2 Aligning HR with Strategy 29

Chapter 3 Environmental Influences on HRM 55

Chapter 4 The HR Forecasting Process 80

Chapter 5 Determining HR Demand 103

Chapter 6 Ascertaining HR Supply 135

Chapter 7 Succession Management 165

Chapter 8 Information Technology for HR Planning 198

Chapter 9 Change Management 220

Chapter 10 Downsizing and Restructuring 253

Chapter 11 Strategic International HRM 287

Chapter 12 Mergers and Acquisitions 315

Chapter 13 Outsourcing 345

Chapter 14 HR Assessment and Analytics 367

Glossary 407

Index 412

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NEL ix

CONTENTS

About the Series xxi
About the Authors xxii
Preface xxiii
Acknowledgments xxix

Chapter 1 Strategic Management 1
Chapter Learning Outcomes 1
Strategic Management at The Bay 2
A Need for Strategic HRM 2

Strategy 3
Strategic Types 6

Corporate Strategies 6
Business Strategies 10

The Strategic Planning Process 11
1. Establish the Mission, Vision, and Values 11
2. Develop Objectives 14
3. Analyze the External Environment 15
4. Identify the Competitive Advantage 15
5. Determine the Competitive Position 18
6. Implement the Strategy 19
7. Evaluate the Performance 19
Benefits of Strategy Formulation 20

Summary 21
Key Terms 22
Discussion Questions 22
Exercises 23
Case Study: Loblaw Companies Ltd. 23
References 26

Chapter 2 Aligning HR with Strategy 29
Chapter Learning Outcomes 29
HR Structure at Johnson and Johnson 30

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NELx

Strategic HRM 30
Theories of the Strategic Management of Human Resources 31

HRM Making Strategic Contributions 31
The Contingency Perspective 32
Behavioural Theory 34
Strategic HR Planning 35
The Importance of Strategic HR Planning 36
Improved Goal Attainment 36

Linking HR Processes to Strategy 37
Corporate Strategy Leads to HR Strategy 38
HR Competencies Lead to Business Strategy 43
Reciprocal Interdependency Between HR Strategy
and Business Strategy 43
HR Becomes a Business Partner 43

Strategic Partnering 44
Becoming More Strategic 45
HR Strategy Differentiation 46

Characteristics of an Effective HRM Strategy 46
Focus on Results 48

Summary 49
Key Terms 49
Discussion Questions 49
Exercises 49
Case Study: Linking HR Practices to Performance 50
References 51

Chapter 3 Environmental Influences on HRM 55
Chapter Learning Outcomes 55
Environmental Scanning at GM 56
Introduction 56
Environmental Scanning Sources and Methods 57

Sources of Information 58
Methods of Forecasting 61

Competitive Intelligence 61
Challenges in Environmental Scanning 62

Isolating the Critical from the Insignificant 62

CONTENTS

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NEL xi

Environmental Factors 62
Economic Climate 63
Globalization 64
Political and Legislative Factors 65
Technological Factors 65
Demographic Factors 67
Social and Cultural Factors 69
Stakeholders 70
Responding to External Factors 72
A Proactive Approach 73

Summary 76
Key Terms 76
Discussion Questions 76
Exercises: Scenario Planning 76
Case Study: Work–Life Family Balance 77
References 78

Chapter 4 The HR Forecasting Process 80
Chapter Learning Outcomes 80
Workforce Planning in Canada 81
What Is HR Forecasting? 81
The Strategic Importance of HR Forecasting 81

Increasing Organizational Flexibility 83
Ensuring a Close Linkage to the Macro Business
Forecasting Process 83
Ensuring That Organizational Requirements Take Precedence
Over Issues of Resource Constraint and Scarcity 85

The Value of Human Capital to the Firm 86
Generic Human Capital 86
Firm-Specific Human Capital 86
Human Capital Stock and Flows 86

Key Human Capital Analyses Conducted by HR Forecasters 88
Strategic Forecasting 88

The Forecasting Process 90
Forecasting Methods 91

CONTENTS

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NELxii

Environmental and Organizational Factors Affecting HR Forecasting 94
HR Forecasting Time Horizons 94
Reconciling Net HR Requirements 97
Institute HR Programs and Policies 97

Summary 97
Key Terms 99
Discussion Questions 99
Exercise 99
Case Study: Forecasting for Home Support Workers 100
References 101

Chapter 5 Determining HR Demand 103
Chapter Learning Outcomes 103
Increase in Uncertainty Around the Demand for Labour

in Canada 104
Forecasting Demand 104

Certainty in Forecasting 105
Volume and Complexity of Available Data 105

Quantitative Methods 106
Trend/Ratio Analysis 106
Time Series Models 108
Regression Analysis 109
Structural Equation Modelling 117

Qualitative Forecasting Techniques 117
Management Survey 117
Scenario Planning 119
Delphi Technique 121
Nominal Group Technique 123

HR Budgets/Staffing Tables 124
Combining Quantitative and Qualitative Methods 126

Simulation 127
Summary 129
Key Terms 129
Discussion Questions 129
Exercise: Scenario Planning 130

CONTENTS

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NEL xiii

Case Study: Ontario Power Generation 131
References 132

Chapter 6 Ascertaining HR Supply 135
Chapter Learning Outcomes 135
Aboriginal People: A Growing Labour Source 136
Introduction 136
Segmenting the Internal Supply of Human Capital 137
HR Supply Programs 140

The Role of Employers in Influencing Supply 140
Other Labour Pools 140
Influence of Government Programs 141
HR Retention Programs 142

Methods for Modelling the Supply of Human Capital 144
Skills and Management Inventories 144
Markov Models 145
Linear Programming and Simulation 149
Movement Analysis 150
Vacancy Model 152

Substitution and Other Gap Strategies 154
Managing the Bullwhip Effect 156

Summary 157
Key Terms 157
Discussion Questions 158
Exercise 158
Case Study: HR Planning at M&K 159
References 161

Chapter 7 Succession Management 165
Chapter Learning Outcomes 165
Succession Management at Edwards Lifesciences 166
Importance of Succession Management 166

Evolution of Succession Management 168
Broader Focus 168
Time Horizon 169
Talent Pools 169

CONTENTS

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NELxiv

Rating System 171
Succession Management Process 172

Summary 188
Key Terms 189
Discussion Questions 189
Exercises 189
Case Study 1: The People Development Framework at Ford of Canada 190
Case Study 2: Executive Succession Management Program at Emend

Management Consulting 192
References 194

Chapter 8 Information Technology for HR Planning 198
Chapter Learning Outcomes 198
Software for HR Planning 199
IT and HRM 199
New Service Delivery Models 200

Web-based HR 200
Enterprise Portals 201
Self-Service 201

Different Solutions for Different Needs 201
HRIS 202
Specialty Products 203
Enterprise Solutions 203

Big Data 203
Types of Big Data 204
The Five Pillars of Big Data 205
Artificial Intelligence and Machine Learning 206
Ethics and Big Data 206

HR Metrics and Workforce Analytics 207
Maximizing the Benefits of HR Metrics 210

Other Aspects of IT for HR Planning 212
Workforce Management and Scheduling 212
Forensic Reporting 213
Ensuring Data Security 213

Evaluating HR Technology 214
Conduct a Needs Analysis 214

CONTENTS

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NEL xv

Summary 215
Key Terms 215
Discussion Questions 216
Exercises 216
Case Study: Sustaining Talent with Strategic Workforce Planning

Software at the Energy Resources Conservation Board 217
References 218

Chapter 9 Change Management 220
Chapter Learning Outcomes 220
Can HR Lead Change? 221
Why Is Organizational Change Important? 221

The Increasing Pace of Change 222
Societal, Industrial, and Organizational Levels of Change 222
Models of Organizational Change 223

Organizations as Open Systems 223
The Importance of Feedback 224
Single-Loop Learning 224
Double-Loop Learning 225

The Generic Model of Change 226
Recognizing the Need for Change and Starting the Process 226
Diagnosing What Needs to Be Changed 226
Planning and Preparing for Change 227
Implementing the Change 229
Sustaining the Change 230

The Planned Model of Change 231
Field Theory 232
Group Dynamics 233
Action Research 234
Three-Step Model 235

Development of the Planned Change Approach 237
Emergent Change 238

Chaos Theory and Emergent Change 239
Organizational Learning 241
Strategic HR and Change 245

CONTENTS

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NELxvi

Summary 247
Key Terms 247
Discussion Questions 247
Exercises 247
Case Study: Change at Tiger Boots 248
References 250

Chapter 10 Downsizing and Restructuring 253
Chapter Learning Outcomes 253
Downsizing: A Thing of the Past? 254
The Downsizing Phenomenon 254

Defining Downsizing and Restructuring 255
Why Do Organizations Downsize? 257
The Downsizing Decision and the Sears Closure 258
Alternatives to Downsizing 259

The Future of Work 260
Artificial Intelligence and Job Loss 260
The Amazon Effect 262

Inplacement and Outplacement Issues 262
Some Ethical Considerations 263
Planning for Downsizing 264
Adjusting to Job Loss 264

The “Survivors” of Downsizing 266
Perceptions of Justice 267
Survivor Reactions 268
Impact on the “Downsizers” 269

Financial Performance and Downsizing 269
Consequences of Downsizing 271
Downsizing Strategies 273
Strategic Downsizing 273
Effective and Ineffective Approaches 274

The “New Deal” in Employment and the Psychological Contract 274
Labour Relations Issues 276

Summary 277
Key Terms 277

CONTENTS

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NEL xvii

Discussion Questions 277
Exercises 278
Case Study: A Downsizing Decision at the Department of Public Works 278
References 280

Chapter 11 Strategic International HRM 287
Chapter Learning Outcomes 287
The Would-Be Pioneer 288
Introduction 288
Key Challenges Influencing HR Practices and Processes

Within an International Context 289
Workforce Diversity 289
Employment Legislation 289
Security 289

Strategic International Human Resources Management 290
The Domestic Stage and Strategy 291
The Multidomestic Stage and Strategy 291
The Multinational Stage and Strategy 291
The Global Stage 292

Key HR Practices and Processes Within an International Context 293
International Assignments 293
Purposes of International Assignments 293
Types of International Assignments 294

International Human Capital Demand and Supply 295
1. Labour Market Data 297
2. External Human Capital Demand and Supply 298
3. The Environment 298
4. Flexible Labour Strategies 298

International Recruitment and Selection 299
Recruitment 299
Selection 301

Pre-Assignment Training 302
Post-Assignment Activities 304

Repatriation 304
Career Development 305

Labour Relations 307

CONTENTS

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NELxviii

Summary 308
Key Terms 308
Discussion Questions 309
Exercises 309
Case Study: Dangerous Assignments 310
References 311

Chapter 12 Mergers and Acquisitions 315
Chapter Learning Outcomes 315
Big Is Beautiful 316
Mergers and Acquisitions 316
Definitions 316
The Urge to Merge 318

Strategic Benefits 318
Financial Benefits 320
Management Needs 321
Merger Methods 321
The Success Rate of Mergers 322
Financial Impact 322
Impact on Human Resources 324

Cultural Issues in Mergers 325
HR Issues in M&As 330

HR Planning 331
Selection 335
Compensation 336
Performance Appraisal 337
Training and Development 337
Labour Relations 337

Evaluation of Success 338
Summary 339
Key Terms 339
Discussion Questions 339
Exercise 339
Case Study: Molson Coors and Acquisitions 340
References 341

CONTENTS

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NEL xix

Chapter 13 Outsourcing 345
Chapter Learning Outcomes 345
Outsourcing at Canadian Banks 346
Outsourcing 346

Outsourcing HR Functions 346
The Rationale for Outsourcing 349

Financial Savings 349
Strategic Focus 351
Advanced Technology 352
Improved Service 352
Specialized Expertise 352
Organizational Politics 353
Benefits to Canada 353

Risks and Limitations of Outsourcing 353
Projected Benefits versus Actual Benefits 354
Service Risks 354
Employee Morale 354
Security Risks 356
Reduced Value 356

Management of Outsourcing 357
Selecting the Vendor 357
Negotiating the Contract 359
Monitoring the Arrangement 360
Policy Options to Limit Outsourcing 362

Summary 362
Key Terms 362
Discussion Questions 362
Exercise 363
Case Study: Outsourcing at Texas Instruments Canada 363
References 363

Chapter 14 HR Assessment and Analytics 367
Chapter Learning Outcomes 367
Keeping Score with the Scorecard 368
Workforce Analytics 368

CONTENTS

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NELxx

The Importance of Evaluating HRM 369
Resistance 370
Rationale 371

The 5C Model of HRM Impact 373
Compliance 373
Client Satisfaction 373
Culture Management 377
Cost Control 379
Contribution 381

How HR Contributes to Organizational Performance 381
Financial Measures 381
Measures of Managerial Perceptions of Effectiveness 383

Approaches to Measuring HRM Practices 384
Cost–Benefit Analysis 384
Utility Analysis 385
Benchmarking 386
The HR Scorecard 388
Measuring the Worth of Employees 389
Universality of Best Practices 390
Separation of Cause and Effect 392
Successful Measurement 393
Reporting to Boards of Directors and Shareholders 396

The Future of HR Analytics 396
Summary 398
Key Terms 398
Web Links 398
Discussion Questions 398
Exercise 399
Case Study 1: Talent Management and Workforce Analytics at Frito-Lay 399
Case Study 2: Measuring Culture to Support Growth at CMA 400
References 401

Glossary 407

Index 412

CONTENTS

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NEL xxi

ABOUT THE SERIES

The management of human resources has become the most important source of innova-
tion, competitive advantage, and productivity. More than ever, human resources man-
agement (HRM) professionals need the knowledge and skills to design HRM policies
and practices that not only meet legal requirements but also are effective in supporting
organizational strategy. Increasingly, these professionals turn to published research and
books on best practices for assistance in the development of effective HR strategies. The
books in the Nelson Series in Human Resources Management are the best source in Canada
for reliable, valid, and current knowledge about practices in HRM.

The texts in this series include:

• Managing Performance through Training and Development
• Management of Occupational Health and Safety
• Recruitment and Selection in Canada
• Strategic Compensation in Canada
• Strategic Human Resources Planning
• Industrial Relations in Canada
The Nelson Series in Human Resources Management represents a significant develop-

ment in the field of HRM for many reasons. Each book in the series is the first and now
best-selling text in the functional area. Furthermore, HR professionals in Canada must
work with Canadian laws, statistics, policies, and values. This series serves their needs. It
is the only opportunity that students and practitioners have to access a complete set of
HRM books, standardized in presentation, which enables them to access information
quickly across many HRM disciplines. Students who are pursuing the HR professional
designation through their provincial HR associations will find the books in this series
invaluable in preparing for the knowledge exams. This one-stop resource will prove
useful to anyone looking for solutions for the effective management of people.

The publication of this series signals that the HRM field has advanced to the stage
where theory and applied research guide practice. The books in the series present the
best and most current research in the functional areas of HRM. Research is supple-
mented with examples of the best practices used by Canadian companies that are leaders
in HRM. Each text begins with a general model of the discipline, and then describes
the implementation of effective strategies. The books serve as an introduction to the
functional area for the new student of HR and as a validation source for the more
experienced HRM practitioner. Cases, exercises, and endnotes provide opportunities for
further discussion and analysis.

As you read and consult the books in this series, I hope you share my excitement in
being involved and knowledgeable about a profession that has such a significant impact
on the achievement of organizational goals, and on employees’ lives.

Monica Belcourt, PhD, FCHRL
Series Editor
March 2018

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NELxxii

ABOUT THE AUTHORS

Monica Belcourt
Monica Belcourt is the founding director of the School of Human Resources Management
at the Faculty of Liberal Arts and Professional Studies at York University. Her writing is
grounded in the experience she gained as director of personnel at CP Rail, as director of
employee development at the National Film Board, and as a functional HR specialist
for other organizations. Dr. Belcourt alternated working in HRM with graduate school,
earning an MA in psychology, an MEd in adult education, and a PhD in management.
In 2010 she was awarded the designation of Fellow Certified Human Resource Leader
(FCHRL), a lifetime achievement award in recognition of extraordinary contributions
to the profession. She has taught HRM at Concordia University, Université du Québec
à Montréal (UQAM), McGill University, and York University. At York, she founded
and managed the largest undergraduate program in HRM in Canada and Canada’s only
executive-style Masters in human resources management. She is the academic editor of
the Nelson Series in HRM.

Dr. Belcourt was the founding director of the International Alliance for Human
Resources Research (now recreated as HRRI [Human Resources Research Institute] and
managed by HRPA), a catalyst for the discovery, dissemination, and application of new
knowledge about HRM. Under her leadership, IAHRR launched The Research Forum,
a column in Human Resources Professional; the Applied Research Stream at the annual
HRPAO conference; and the best theses awards program.

Dr. Belcourt was active in many professional associations and organizations.
She was the president of the Human Resources Professionals Association of Ontario
(http://www.hrpa.org). She is a frequent commentator on HRM issues for CTV’s
Canada AM, CBC, The Globe and Mail, Report on Business Television, Workopolis, and
other media.

Mark Podolsky
Mark Podolsky is an Assistant Professor at the School of Human Resource Management
at York University. Mark received his PhD in Human Resource Management and
Organizational Behaviour from the DeGroote School of Business at McMaster
University. His research focuses on situational constraints in the workplace, which
includes the kinds of management practices and behavioural norms that can influence
individual and group level behaviours and outcomes. Mark’s research also explores the
relationships between organizational strategy and HR practices, and seeks to develop
methods to connect strategic outcomes to HR practices and the management of human
capital.

With management experience in the financial sector and in arts organizations,
Mark’s research and teaching brings an understanding of many of the issues facing prac-
titioners today. In addition to organizational research, Mark has a deep love of music,
and prior to his PhD was a tenured professional classical musician in one of Canada’s
leading symphony orchestras.

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NEL xxiii

The fundamental premise of this text is that different organizational strategies require
different human resources management (HRM) policies and practices. Strategic Human
Resources Planning, Seventh Edition, is designed to help human resources (HR) managers
plan and make decisions about the allocation of resources for the effective management
of people in organizations within a given strategy.

HR planning should be more than just demand and supply forecasting: HR profes-
sionals should be business partners in strategy formulation and implementation, and
should be concerned with the implications of strategic decisions on HRM practices. A
decision to expand internationally affects selection, compensation, and other functional
areas. Strategic decisions to merge or downsize have HR implications beyond simple
forecasting. All these strategic options will lead to questions about the best types of
compensation, selection, and training to ensure the success of the chosen strategy. This
text attempts to answer these questions, without neglecting traditional and important
HR forecasting processes. It provides tools for HR planning and forecasting and matches
corporate strategies with specific HR practices.

// STRUCTURE OF THE TEXT AND CHANGES
IN THE SEVENTH EDITION
The text is organized to introduce the reader to the concepts of strategy formulation
and implementation within an HR context. Chapters 1 to 3 outline the fundamental
building blocks of strategic HR with an introduction to the concepts and their links to
HR planning, how trends and issues are identified, and how organizations determine
whether implementation of strategies, policies, and plans are successful.

Chapter 1 lays the groundwork by introducing the concepts of both corporate and
business strategies. We spend some time explaining strategic choices because it is impera-
tive that, as HR managers become business partners, they understand commonly used
business terms. This will help them to participate fully in strategic discussions and to
explain the impact of their HR programs on the organization. Strategy seems to imply
that only corporate-wide plans are made, and that these are used to manage and control
the various units that exist within an organization. But many large organizations operate
several businesses, each with its own strategy. (For example, Alcan Aluminum operates
two “divisions” or businesses, one that focuses on primary metals and one that focuses
on fabrication. Each has a different business strategy, although the overall corporate
strategy is growth.) Two types of business-level strategies are discussed. Because most HR
professionals are becoming strategic planning partners, and are playing a critical role in
the development of mission, vision, and value statements, we have included material on
describing and differentiating these concepts. In the HR world, there is a growing under-
standing that human resources provide a competitive advantage. We describe what this
means, and distinguish between tangible and intangible assets. We outline the benefits
of strategy formulation. A model of strategic HR planning is introduced in this chapter
to orient the reader and to provide the structure for the text.

PREFACE

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NELxxiv

Chapter 2 continues the introduction to strategy by embedding HRM strategy
within an organizational strategic framework. A model of strategic HR planning is intro-
duced in this chapter to orient the reader and to provide the structure for the text. As
the field of HR develops, many are claiming that the discipline needs to have a theo-
retical foundation in order to test and validate new ideas about the best way to manage
employees. We introduce three perspectives, which may be in the embryonic stages of
testable theories: the resource-based view, the behavioural perspective, and the “theory”
of human capital. The rest of the chapter is focused on a description of strategic HR, the
reasons HR planning is important, and the ways in which the HR function contributes
to the strategic planning process. Coverage of goal attainment is strengthened in this
edition. Finally, we conclude with a section that outlines the characteristics of an effec-
tive HR strategy.

The environmental factors that influence strategic choice, particularly within an HR
context, are discussed in Chapter 3. We look at the sources of information about the envi-
ronment and the methods HR strategists use to scan the environment. In this chapter,
we have discussed the stages of environmental planning. We have listed the sources
of information that are useful for environmental scanning. We have included material
about the methods of forecasting, including scenario planning. There is also a section on
competitive intelligence. In this edition, there is an emphasis on the expanding role of
technology. As we do for every edition, we identify the latest trends in globalization, the
labour market, politics and legislation, technology, demography, and culture that will
influence the practice of HR. This edition has a new section on Generation Z or iGen.
We conclude with a description of how stakeholders influence HR policies.

Chapters 4 to 8 focus on the more traditional aspects of HR planning: forecasting
supply and demand. A critical component of strategy is matching employee capabilities
with organizational objectives. The ability to assess current skills is a fundamental part
of strategic planning for human resources. These chapters provide a comprehensive set
of tools that enables the HR professional to develop the numbers and methods needed
to support organizational objectives.

Chapter 4 introduces the forecasting process and the general methods that are com-
monly used. This edition differentiates this chapter from the subsequent chapters on
forecasting HR demand (Chapter 5) and forecasting supply (Chapter 6) by focusing on
the forecasting process in general, and its importance in the development of strategic
human capital. This edition includes a new section on the relevance of the stock and
flow of human capital to the forecasting process. As organizations continue to move
toward labour practices that go beyond the constraints of full-time or part-time jobs, this
chapter considers how the human capital forecasting process can begin to look at work
in terms of tasks that must be performed rather than jobs that must be filled. The chapter
then considers the environmental and organizational factors that affect the forecasting
process, and closes with a brief discussion of how estimates of demand and supply are
brought together to form a basis for instituting or revising HR programs and policies.

Chapter 5 introduces methods for forecasting the demand for human capital. This
edition begins with some of the current challenges to demand forecasting, including the
high levels of uncertainty in today’s environment as well as the growing volume and
complexity of data that is becoming available to organizations. Chapter 5 is roughly
organized by the basic categories of demand forecasting, ranging from quantitative
methods, to qualitative methods, and finally to methods that combine both quantita-
tive and qualitative methods such as simulation. With the growing importance of data
in the decision-making process in organizations, this chapter provides examples of basic
quantitative methods such as trend analysis and regression, so that students develop an

PREFACE

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NEL xxv

understanding of how these methods can be applied in the context of forecasting the
demand for human capital. This edition includes new sections on the differences in the
types of data and results expected from qualitative versus quantitative analyses, and a sec-
tion on simulation as a method to combine qualitative knowledge with quantitative data.

Chapter 6 focuses on the methods for forecasting the supply of human capital.
This chapter begins by orienting the reader to the role that supply forecasting plays in
the development of a skills gap. This edition also introduces the concept of employee
segmentation, where the HR function groups employees based on characteristics that
are relevant to the employee experience. Segmentation can increase the size of the rel-
evant applicant pool, and potentially decrease turnover. This edition also includes an
expanded focus on the use of Markov models and discusses the bullwhip effect in order
to understand how to model the flow of human capital.

Managerial succession planning, discussed in Chapter 7, is an important consider-
ation for ensuring that the organization has a stock of replacements for its managers.
Succession management has evolved from replacement planning for individual execu-
tives to the development of talent pools for broad leadership roles aligned with the
organization’s strategies. An example of a replacement chart has been included in this
chapter. Development techniques such as promotions, job rotations, special assign-
ments, and mentoring and coaching are described. The role of employees in their own
career development is outlined.

Chapter 8 has been revised to reflect the growing roles of big data and HR analytics
in the HR function. The chapter begins with the role of IT in supporting the HR function
through various modes of service delivery such as web portals, apps, self-service, and HR
information systems. Big data is defined and discussed in terms of the different types of
big data, the resources required to support big data, and the ethical challenges emerging
from its use. There is also discussion around the limitations to using big data in the
context of the HR function. Artificial intelligence is emerging as an important partner to
the use of big data, as it helps humans to sort through and model large amounts of data.
Workforce analytics are introduced in this chapter as they relate to the development of
HR dashboards. Workforce analytics are discussed in more detail in Chapter 14.

Chapters 9 to 13 examine the types of strategic orientations that firms may choose.
Company-wide strategies, sometimes referred to as corporate strategies, are focused on
overall strategy for the company and its businesses or interests. Examples of corporate
strategies include decisions to merge or to establish the organization in international
markets. Strategies at this level are usually also focused on long-term growth and survival
goals.

We discuss four major decisions facing organizations: restructuring, international
operations, mergers and acquisitions, and outsourcing. HR planning is discussed within
the overall strategies of restructuring, international initiatives, and mergers. By the end
of these chapters, readers will understand how specific strategic decisions can be matched
with HR policies and practices.

Chapter 9 introduces the topic of organizational change and its importance to the
HR planning process. The chapter begins with a discussion of the competencies that
are important for leading change, and the challenges HR departments face in general in
bringing about organizational change. Models of organizational changes are introduced,
with a focus on two major perspectives around how change is implemented: the planned
approach, and the emergent approach. Despite the apparent differences in these two
approaches, they both benefit from the principles of a learning organization. This edi-
tion closes the chapter with a discussion of the role of the HR function in bringing about
successful organizational change.

PREFACE

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NELxxvi

Chapter 10, written by Professor Terry Wagar of Saint Mary’s University, discusses
restructuring and downsizing. Starting with definitions of these two terms, this chapter
presents different strategies for reducing the workforce. The reasons for downsizing are
delineated. The consequences of reducing the workforce are explained, including sur-
vivor syndrome and the impact on financial indices. We include a debate on ethical
considerations of downsizing and an introduction to other impacts of restructuring,
including corporate reputation, organizational learning, and employee safety. New to
this edition is a discussion of the future of work, including artificial intelligence and job
loss. This chapter offers suggestions for effective downsizing. The chapter concludes with
a discussion on the effect of downsizing on HR issues such as the psychological contract
and labour relations.

Chapter 11 extends the principles of HR planning from the domestic context to
a global focus. The chapter begins with a discussion of the challenges of managing an
international workforce. This edition includes increased discussion around the different
types of international assignments, and includes new sections on issues of human capital
demand and supply in an international context.

In Chapter 12, we examine another high-growth area: mergers and acquisitions
(M&As). An acquisition occurs when one company acquires another, whereas a merger
is typically seen as two organizations merging to achieve economies of scale. Both
acquisitions and mergers lead to issues of integration of common functions, elimina-
tion of duplication or underproductive units, and a meshing of cultures and practices.
We include a section on cultural assessment and classification that should enable HR
managers to make better decisions about possible fit between two organizations contem-
plating a merger. This chapter outlines the benefits of M&As, and compares the alleged
benefits against the real effectiveness of this strategy. HR has a significant role to play, as
mergers often fail because HR issues are not managed in a timely and effective manner.
There is a new section on making mergers successful.

The hot issue of outsourcing is explored in Chapter 13, with a thorough analysis of
the reasons, risks, and benefits of the outsourcing decision. The benefits are not always
realized, so the chapter offers suggestions for managing the outsourcing arrangement.
We include a new section on the issues with the providers of outsourcing. We also dis-
cuss the evolving consumer backlash to outsourcing.

A critical part of strategic planning is the ability to measure results and to determine if
goals have been met. Chapter 14, “HR Assessment and Analytics,” provides information
about the importance of not only measuring HR activities and programs, but also using
data (metrics) to predict employee behaviour. Because HR is a young field, we are prone
to adopt emerging trends, and so we describe how to distinguish a fad from an effective
HR program. This chapter provides a framework for understanding how HR processes,
practices, and policies can affect organizational outcomes. This edition strengthens the
content on HR analytics. The chapter outlines the many ways to evaluate effectiveness,
and which areas to measure. There is a need to establish universal metrics of measure-
ment and prediction. We include a list of the characteristics of successful measurement.

Features retained from the previous edition of this text include chapter learning
outcomes, extensive use of Canadian examples, use of figures and tables to convey infor-
mation efficiently, margin definitions of key concepts, chapter summaries, and listings
of key terms.

New content in the Seventh Edition includes new chapter opening vignettes, as well
as new “HR Planning Today” boxes to put issues in a real-life context, and new “HR
Planning Notebook” boxes to highlight key points that flow from the chapter. End-of-
chapter material includes some new discussion questions, exercises, and case studies.

PREFACE

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NEL xxvii

As a part of the process needed to earn a professional HR designation, granted
by the HR provincial associations, applicants must undergo two assessments: one is a
knowledge-based exam, and the second assessment is based on experience. Because the
competencies required for the knowledge exams may differ by province, we have not
provided lists or links in this edition. Those interested in obtaining an HR designation
should consult the HR Association in their province.

// INSTRUCTOR RESOURCES
The Nelson Education Teaching Advantage (NETA) program delivers research-based
instructor resources that promote student engagement and higher-order thinking to
enable the success of Canadian students and educators. Visit Nelson Education’s Inspired
Instruction website at www.nelson.com/inspired to find out more about NETA.

The following instructor resources have been created for Strategic Human Resources
Planning, Seventh Edition. Access these ultimate tools for customizing lectures and pre-
sentations at www.nelson.com/instructor.

NETA TEST BANK
This resource was prepared by Catherine Fitzgerald, Okanagan College. It includes over
850 multiple-choice questions written according to NETA guidelines for effective con-
struction and development of higher-order questions. Also included are true/false and
short-answer questions.

The NETA Test Bank is available in a new, cloud-based platform. Testing Powered
by Cognero® is a secure online testing system that allows instructors to author, edit, and
manage test bank content from anywhere Internet access is available. No special instal-
lations or downloads are needed, and the desktop-inspired interface, with its dropdown
menus and familiar, intuitive tools, allows instructors to create and manage tests with
ease. Multiple test versions can be created in an instant, and content can be imported
or exported into other systems. Tests can be delivered from a learning management
system, the classroom, or wherever an instructor chooses. Testing Powered by Cognero
for Strategic Human Resources Planning can also be accessed through www.nelson.com/
instructor.

NETA POWERPOINT
Microsoft® PowerPoint® lecture slides for every chapter have been adapted by
Carol Ann Samhaber, Algonquin College. There is an average of 33 slides per chapter.
The slides provide a basic outline of the chapter and contain key figures, tables, and pho-
tographs from Strategic Human Resources Planning. NETA principles of clear design and
engaging content have been incorporated throughout, making it simple for instructors
to customize the deck for their courses.

IMAGE LIBRARY
This resource consists of digital copies of figures, short tables, and photographs used
in the book. Instructors may use these images to customize the NETA PowerPoint® or
create their own PowerPoint presentations.

PREFACE

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NELxxviii

NETA INSTRUCTOR GUIDE
The Instructor’s Manual to accompany Strategic Human Resources Planning, Seventh
Edition, has been prepared by Lisa Bering, Humber College. This manual contains
learning outcomes, chapter summaries, suggested classroom activities, case studies, and
additional exercises.

MINDTAP
Offering personalized paths of dynamic assignments and applications, MindTap for
Strategic Human Resources Planning is a digital learning solution that turns cookie-cutter
into cutting-edge, apathy into engagement, and memorizers into higher-level thinkers.
MindTap enables students to analyze and apply chapter concepts within relevant
assignments, and allows instructors to measure skills and promote better outcomes
with ease. A fully online learning solution, MindTap combines all student learning
tools—readings, multimedia, activities, and assessments—into a single Learning Path
that guides the students through the curriculum. Instructors personalize the experience
by customizing the presentation of these learning tools to their students, even seam-
lessly introducing their own content into the Learning Path.

// STUDENT ANCILLARIES
MINDTAP
Stay organized and efficient with MindTap—a single destination with all the course mate-
rial and study aids you need to succeed. Built-in apps leverage social media and the latest
learning technology. For example:

• ReadSpeaker will read the text to you.
• Flashcards are pre-populated to provide you with a jump start for review—or you

can create your own.
• You can highlight text and make notes in your MindTap Reader. Your notes will

flow into Evernote, the electronic notebook app that you can access anywhere
when it’s time to study for the exam.

• Self-quizzing allows you to assess your understanding.
Visit http://www.nelson.com/student to start using MindTap. Enter the Online

Access Code from the card included with your text. If a code card is not provided, you
can purchase instant access at NELSONbrain.com.

We hope that this book provides an enjoyable learning experience.

Monica Belcourt
Mark Podolsky
March 2018

PREFACE

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NEL xxix

ACKNOWLEDGMENTS

The authors wish to acknowledge the contributions of Terry Wagar of Saint Mary’s
University. Professor Wagar drew on personal research and experience to write an out-
standing chapter on downsizing and restructuring.

The authors wish to thank the following reviewers who made helpful comments
for this revision: Carolyn Capretta, McMaster University; Christine Coulter, Queen’s
University; Leanne Floden, Northern Alberta Institute of Technology; Laura Gover,
Vancouver Island University; Joanne Leck, University of Ottawa; Frank Miller, Ryerson
University; Melanie Peacock, Mt. Royal University; and Chris Roubecas, Southern
Alberta Institute of Technology. We would also like to acknowledge many others who
assisted in reviewing earlier editions of this book. They are Gordon Barnard, Durham
College; John Hardisty, Sheridan College; Grace O’Farrell, University of Winnipeg;
Sheldon Shiewitz, Centennial College; Michelle White, Fanshawe College; Jerome
Collins, St. Clair College; Lisa Guglielmi, Seneca College; Ruthanne Krant, Georgian
College; Ted Mock, University of Toronto; and David Parkes, Grant MacEwan University.

The team at Nelson contributed enormously through their professionalism and
dedication. Jackie Wood, in particular, has been tremendously helpful in the develop-
mental process for the series. We would also like to thank content manager Elke Price,
permissions coordinator Daniela Glass, permissions researcher Karen Hunter, produc-
tion manager Shannon Martin, and freelance copy editor Karen Rolfe.

We are grateful to our students in the HR graduate program, especially those in
the HRM Effectiveness class, for their research projects on strategic issues, and in the
undergraduate course Human Resources Planning, for their thoughtful comments about
the contents of the book. Above all, we wish to thank our colleagues across Canada who
have supported the HRM Series by contributing their research, their experience, and
their ideas to enable HRM students to read about the HRM landscape in this country.

Finally, we continue to owe much of our career success to the support of our fami-
lies. I, Monica, thank Michael, my husband, who has been a constant supporter of my
professional career. I, Mark, thank my wife, Mary Jo, for her guidance and inspiration.

Monica Belcourt
York University

Mark Podolsky
York University

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NEL

CHAPTER

1

CHAPTER LEARNING OUTCOMES
AFTER READING THIS CHAPTER, YOU SHOULD BE ABLE TO:

• Discuss why managers need to examine the human resources implications
of their organizational strategies.

• Discuss why human resources managers need to understand strategy.
• Understand the various terms used to define strategy and its processes.
• Describe organizational strategies, including restructuring, growth, and

maintenance.
• Define business strategy and discuss how it differs from corporate strategy.
• Discuss the steps used in strategic planning.
• List the benefits of strategic planning.

STRATEGIC MANAGEMENT

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Sanjana bindroo

Sanjana bindroo

Sanjana bindroo

Sanjana bindroo

Strategic Human Resources Planning NEL2

// A NEED FOR STRATEGIC HRM
Read any Canadian newspaper and you will see stories such as these:

• Amazon buys Whole Foods and will pose new threats to the grocery retail
sector.

• FedEx closes retail stores.
• Toys R Us files for bankruptcy.
• The jobs of hundreds of support staff in Winnipeg hospitals are eliminated.
• Strawhouse, a developer of digital marketing tools, based in Kelowna, BC,

grew 3000 percent in two years.

The common theme in these stories is the adoption of a strategy that has serious
HRM implications. In most cases, unless the HRM strategy, for example, internation-
alization or downsizing, is appropriately formulated and skillfully implemented, the
success of the organizational strategy is at risk.

Hudson’s Bay Company (HBC) is Canada’s oldest organi-
zation, established in 1670 as a fur trading company. It
has survived for over 300 years by adapting its strategy
to changing environmental conditions, both threats and
opportunities. The following condensed history will dem-
onstrate that it has experienced nearly all of the strategic
options described in this chapter.

In 1821, HBC merged with its main rival, the North
West Company. The declining demand for fur influenced
the decision to change the fur trading posts to retail stores,
and HBC launched its department store business in 1913.
The company also had a diversification strategy and at
various times throughout its history sold liquor, salmon,
coffee, tobacco, and real estate. The economic downturn
of the 1980s caused HBC to rethink its priorities and, like
many other firms, return to its core business. Non-retail
businesses were sold off and retail businesses added.
The pace of retail acquisition increased with takeovers of
Zellers (1978), Simpsons (1978), Fields (1978), Robinson’s
(1979), Towers/Bonimart (1990), Woodward’s (1994), and
Kmart Canada (1998) following in the tradition of Cairns
(1921), Morgan’s (1960), and Freiman’s (1971). Even HBC’s
subsidiaries had to adopt new business-level strategies.
For example, when Walmart entered the Canadian retail
market in 1994, competing head-on with Zellers, the
latter had to reposition itself from a low-cost business
strategy to a differentiation strategy by selling exclusive

and slightly upscale products such as Martha Stewart
Everyday. Other retailers, such as Eaton’s and Consumer
Distributors, did not make good strategic decisions, and
went bankrupt.

In 2005, HBC adopted a corporate growth strategy
and a business-level strategy of differentiation coupled
with low cost by opening new store concepts such as
Home Outfitters and DealsOutlet.ca. Online shopping was
introduced in 2000. In 2006, American billionaire Jerry
Zucker bought HBC. Thanks to HBC’s talent management
and succession planning systems in place, HBC was able
to quickly generate a new executive team from within.
When Zucker died, his estate sold HBC to NRDC (owners
of the Lord & Taylor department store). The 2008–2009
economic recession again forced HBC to focus on its
department store and specialty store businesses to drive
growth. In 2011, HBC decided to spin off 220 stores of
its weakest chain, Zellers, to Target for $1.825 billion.
Currently, HBC is focusing on the luxury market, with the
acquisition of other retailers such as Lord and Taylor and
Saks Fifth Avenue.1 The organization has acquired one
retailer in Germany and another in Belgium. Currently it
has 480 stores and 66 000 employees.

The HBC example highlights the strategic decisions
made by organizations in their attempts to survive and
become profitable. Each strategic choice has implications
for the management of human resources.

STRATEGIC MANAGEMENT AT THE BAY

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NEL 3CHAPTER 1 Strategic Management

We have written this book to provide answers to questions about the proper align-
ment of HR policies with organizational strategies. Managers who have implemented
any kind of change within their organizations realize the importance of matching HRM
practices with organizational goals. There is a growing acknowledgment that the strategic
management of people within organizations affects important organizational outcomes
such as survival, profitability, customer satisfaction levels, and employee performance.
Our goal is to help readers understand strategy and the HRM programs and policies
that enable organizations to achieve that strategy. We discuss strategy at some length,
because HR professionals have been criticized for not understanding nor using the
language of business when discussing the value of HR programs. HR managers have
to use strategy terms to show how their HR practices support organizational strategies.

STRATEGY
Strategy is the formulation of organizational objectives, competitive scopes, and action
plans for gaining advantage.2 Strategy is the plan for how the organization intends to
achieve its goals. The means it will use, the courses of action it will take, and how it will
generally operate and compete constitute the organization’s strategy.3

We have presented one definition of strategy, but there are many others. A sampling
is found in HR Planning Notebook 1.1.

The top management team determines strategy through a process of environmental
analysis (which is discussed in Chapter 3) and discussions. The strategy and objectives
developed by senior management are then approved by the board, and negotiated and
revised as they filter throughout the organization. The organization then develops
plans, which include HRM programs, to achieve those goals. This does not suggest,
however, that strategic planning is a unilateral or one-time process. Various organiza-
tional outcomes provide a feedback loop to the strategic planning process led by senior

Strategy
The formulation
of organizational
objectives, scopes, and
action plans for gaining
advantage

HR PLANNING NOTEBOOK 1.1

DESCRIPTIONS OF STRATEGY

Concepts of strategy are numerous. Here is a guide to
some common terms used throughout the text and in the
organizations where you work:

Strategy: A declaration of intent

Strategic intent: A tangible corporate goal; a point
of view about the competitive positions a company
hopes to build over a decade

Strategic planning: The systematic determination of
goals and the plans to achieve them

Strategy formulation: The entire process of conceptu-
alizing the mission of an organization, identifying the
strategy, and developing long-range performance goals

Strategy implementation: Those activities that
employees and managers of an organization
undertake to enact the strategic plan and achieve
the performance goals

Objectives: The end, the goals

Plans: The product of strategy, the means to the end

Strategic plan: A written statement that outlines the
future goals of an organization, including long-term
performance goals

Policies: Broad guidelines to action, which establish
the parameters or rules

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Sanjana bindroo

Sanjana bindroo

Sanjana bindroo

Sanjana bindroo

Sanjana bindroo

Strategic Human Resources Planning NEL4

management, who will also continuously monitor the dynamic environment to make
adjustments to the strategy.

Strategic planning requires thinking about the future. In a perfect world, some
experts believe that the strategic planner would establish an objective for 5 to 10 years
and then formulate plans for achieving the goals. However, other experts do not per-
ceive strategy in such a simplistic, linear fashion. They assert that the future is not that
predictable. Planning for the long term (i.e., more than 10 years) is difficult and would
be more appropriately judged as a best guess. For example, the nuclear power industry
in Japan could not have predicted the 2011 Tohoku earthquake and tsunami, nor could
financial analysts have predicted the 2008 economic meltdown on Wall Street. Besides
catastrophic events, there are more typical shocks to the competitive environment
that trigger a change in strategy, such as changing market conditions, new technology,
emerging markets, and new moves of competitors etc. Some other organizational events
that precede strategic change are outlined in HR Planning Notebook 1.2.

Because of the unpredictability of trigger events, many planners look at a rela-
tively shorter period of time, a more predictable term of three to five years. Because
of the uncertainty, their plans are formulated to be somewhat flexible so that they can
respond to changes in the environment. Thus, strategic planning must be viewed as a
dynamic process, moving, shifting, and evolving as conditions warrant changes. The
process of subtly redirecting strategy to accommodate these changes is called logical
incrementalism.4 Rather than calling for a straight path to the goal, this strategy calls
for a series of actions to react to changes in competitor actions or new legislation.
Another name for this reactive process is emergent strategy. This cumulative process
can look like a dramatic revolutionary change to those on the outside, but to those
on the inside, the strategy has been incrementally implemented.5 Firms can wait pas-
sively for these changes to occur and then react, or they can anticipate these moves
and adopt a proactive stance.

Writers on strategy sometimes distinguish between intended strategy and realized
strategy. The intended strategy is the one that was formulated at the beginning of the
period. The realized strategy is, of course, what actually happened.

Figure 1.1 illustrates these various concepts of strategy.
You may be asking: Why develop a strategy if the organization must continually

change it to accommodate unforeseen changes? Think of strategy as a game plan or a
flight plan. A pilot’s flight plan looks relatively simple: fly from Ottawa to Edmonton.
However, before departure, he or she is aware of the environment and the capacities
(or competencies) of the plane. On the basis of these external and internal factors, the
pilot develops a strategy for a safe flight. While on the voyage, however, environmental
changes, such as strong winds or a blizzard, may require a change of plans. Even internal
factors, such as a passenger suffering a heart attack, may necessitate such a change. But
the plane and/or its passengers will somehow, at some time, arrive in Edmonton. This
is what is meant by incremental adjustments to the strategy, adjustments that do not
require changing the focus of the desired result. There is no strategy so finely crafted
that adjustments aren’t needed. The general rule is that, unless there is a crisis, it should
not be necessary to make quantum leaps in strategies. Thus, these strategies should
withstand the test of time and be durable for several years.

A good strategy recognizes the complexity of these realities. To be effective, strategic
management anticipates future problems, provides an alignment with external contin-
gencies and internal competencies, recognizes multiple stakeholders, and is concerned
with measurable performance6—just like the flight plan.

Emergent strategy
The plan that changes
incrementally due to
environmental changes
Intended strategy
The formulated plan
Realized strategy
The implemented plan

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HR PLANNING NOTEBOOK 1.2

TRIGGERING EVENTS TO STIMULATE A CHANGE IN STRATEGY

Here are some common examples of events that trigger a
change in strategy within organizations:

• New CEO: May ask questions about the assump-
tions underlying the strategy and challenge the
status quo

• Threat of a change in ownership: Similarly to a
change in CEO, new owners (or a threat of new
ownership) cause a reconsideration of the effec-
tiveness of the strategy

• External intervention: Examples are a customer
who accounts for a large portion of sales defecting

to another company or lodging a serious complaint
about a defect

• Performance gap: When sales or profit targets are
not being met, most organizations will review the
strategy

• Strategic inflection point: Rapid changes in tech-
nology (for example, when Yellow Pages had to go
digital), customer preferences, or industry regula-
tions will trigger a change in strategy

Sources: Adapted from S.S. Gordon, W.H. Stewart, R. Sweo, and W.A. Luker, “Convergence versus Strategic Reorientation: The Antecedents of
Fast-Paced Organizational Change,” Journal of Management, Vol. 26, No. 5 (2000), pp. 911–945; and T.L. Wheelen, and J.D. Hunger, Concepts in
Strategic Management and Business Policy, 11th edition, 2008, Toronto: Prentice Hall, p. 19.

Emergent Strategy
Created from new
ideas and conditions

Realized Strategy
Executed representing
some planned and
some emergent
strategy

Discarded Strategy
Deemed inappropriate
due to changing
circumstances

Intended Strategy
The agreed-upon
strategy arrived at
through the formal
planning process

FIGURE 1.1

THE REALITY OF THE STRATEGIC PROCESS

Adapted from the work by Henry Mintzberg. Used with permission.

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Strategic Human Resources Planning NEL6

The fundamental premise of this book is that different organizational strategies
demand different HR policies and practices. Therefore, before we can discuss HRM
strategies, you need to understand the different types of strategies that organizations
formulate and implement.

// STRATEGIC TYPES
Many executives and senior managers put in an incredible number of hours forging
the strategy for the firm, and they believe the strategy they developed, with much
sweat and tears, is unique to their organizations. In one sense, pure, unique organiza-
tional strategies do exist, because organizations are extremely complex and no two are
identical. In another sense, they do not, because it is possible to group strategies into
categories or generic types. Just as we can group our friends into personality categories
of introvert and extrovert, so we can group organizations by strategy. By virtue of their
simplicity, these typologies, or classification schemes, aid our understanding. The more
we add variables to approximate the reality of an organization, the more unwieldy the
typology becomes.7 Organizational theorists use classification schemes not only to
help us understand how organizations work but also to enable us to test the concepts,
leading us to better information about how to manage.

These identifiable, basic strategies can be classified into (1) corporate strategies and
(2) business strategies.

CORPORATE STRATEGIES
Company-wide strategies, sometimes referred to as corporate strategies, are focused
on overall strategy for the company and all of its businesses or interests. Examples of
corporate strategies include decisions to compete internationally or to merge with other
companies. Strategies at this level are usually focused on long-term growth and survival
goals and will include major decisions such as the decision to acquire another company.

Grouped within corporate strategies are three options: restructuring, growth, and
stability.

RESTRUCTURING STRATEGIES

When an organization is not achieving its goals, whether these are business goals of
profitability or social goals such as helping rehabilitate prisoners, corporate strategy
becomes one of trying to deal with the problem. Restructuring options include turn-
around, divestiture, liquidation, and bankruptcy.

TURNAROUND A turnaround strategy (sometimes called a retrenchment strategy) is one in
which managers try to restore money-losing businesses to healthy profitability or gov-
ernment agencies to viability. Turnaround methods include getting rid of unprofitable
products, imposing layoffs, making the organization more efficient, or attempting to
reposition it with new products. For example, many cable companies were once near
bankruptcy and have now turned around. See also HR Planning Today 1.1 for a history
of the turnaround efforts of McDonald’s.

Corporate strategies
Organizational-level
decisions that focus on
long-term survival

Turnaround strategy
An attempt to increase
the viability of an
organization

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NEL 7CHAPTER 1 Strategic Management

DIVESTITURE Divestiture refers to spinning off a business as a financially and mana-
gerially independent company or selling it outright.8 For example, Nokia divested its
smartphone business to Microsoft. Here in Canada, the private equity fund NRDC
acquired Hudson’s Bay for roughly $1.1 billion in 2008. In 2011, it divested one of
HBC’s weakest chains, Zellers, which was sold to Target for more than $1.8 billion,
much higher than the price NRDC paid for HBC.9

LIQUIDATION The least attractive alternative is liquidation, in which plants are closed,
employees released, and goods auctioned off. There is little return to shareholders under
this option. Nevertheless, an early liquidation may allow some resources (including
human resources) to be salvaged, whereas a bankruptcy does not. Jacobs, a fashion
retailer, and Radio Shack are recent examples of liquidation.

BANKRUPTCY Bankruptcy occurs when a company can no longer pay its creditors, and,
usually, one of them calls a loan. The company ceases to exist, and its assets are divided
among its creditors. The list of companies that have filed for bankruptcy is long and
includes CanWest, Quebecor, and Sears.

HR PLANNING TODAY 1.1

TURNAROUND AT MCDONALD’S

The McDonald’s burger chain has, for several decades,
been a success story. Every year saw increases in out-
lets, people served, profits, and shareholder value. Today,
375! 000 McDonald’s employees serve about 69 million
people daily in 36 900 outlets in 120 countries. Many
different strategies led to this success.

One effort focused on making its food healthier
through continuous innovation. It introduced premium
salads in 2003, snack wraps in 2006, and real-fruit
smoothies and frappés in 2010. Related to these intro-
ductions was its switch to trans fat–free cooking oil for
french fries and the use of organic milks. The company
also introduced a food and nutrition website, and created a
mobile app that allows customers to calculate the nutrients
in their meal choices.

Another effort attempted to tap regional food inter-
ests. The company has McArabias (grilled chicken in
Arabic bread) in the Middle East, Shogun Burgers (teriyaki

pork) in Hong Kong, McShawarmas (kosher meat) in Israel,
Bulgogi Burgers in South Korea, and McSpicy Paneer in
India.

A third attempt was to diversify; McDonald’s added
high-margin McCafé coffees in 2009 and Chipotle BBQ in
2011 to broaden its customer base.

Finally, as consumers were facing the economic
recession, McDonald’s boosted its low-price dollar-menu
items, which included a double cheeseburger or a hot
fudge sundae. At a recent presentation at Ryerson Uni-
versity, the Canadian CEO admitted to making mistakes
such as introducing too many products (menu creep). For
example, a launch of custom made meals (“Create your
taste”) resulted in wait times of seven minutes, compared
to two minutes for its fast-food bestsellers (fries, burgers,
nuggets) McDonald’s decided to focus on a core item:
coffee. It now controls 11 percent of the brewed coffee
market in Canada.

Sources: Adapted from www.canadianbusiness.com/companies-and-industries/mccomeback, retrieved November 17, 2014; Olive, D. “Don’t count
the behemoth out yet,” The Toronto Star, December 12, 2014; D. Goold, “McDonald’s Woes a Matter of Taste,” The Globe and Mail, November 28,
2002, p. B9; “McDonald’s Said Ready for More Restructuring,” The Globe and Mail, March 24, 2003, p. B1; and www.economist.com/blogs/schum-
peter/2011/06/fast-food-and-cultural-sensitivity; and -company fact sheets, www.mcdonalds.com, retrieved July 26, 2011.

Divestiture
The sale of a
division or part of an
organization
Liquidation
The termination of a
business and the sale
of its assets
Bankruptcy
A formal procedure in
which an appointed
trustee in bankruptcy
takes possession of a
business’s assets and
disposes of them in an
orderly fashion

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Strategic Human Resources Planning NEL8

Restructuring strategies, like growth strategies, have profound effects on human resources
issues, such as managed turnover, selective layoffs, transfers, increased demands on remaining
employees, and renegotiated labour contracts. These issues are described in Chapter 10.

GROWTH STRATEGIES

Many organizations in the private-sector target growth as their number-one strategy. By
this they mean growth in revenues, sales, market share, customers, orders, and so on.
To a large extent, the implications of a growth strategy for HR practices are profound.
A firm in a growth stage is engaged in job creation, aggressive recruitment and selec-
tion, rapidly rising wages, and expanded orientation and training budgets, depending
on how the organization chooses to grow. Amazon and Alibaba are good examples of
companies with growth strategies.

Growth can be achieved in several ways: incrementally, internationally, or by mergers
and acquisitions.

INCREMENTAL GROWTH Incremental growth can be attained by expanding the client
base, increasing the products or services, changing the distribution networks, or using
technology. Procter & Gamble uses all these methods:

• Expanding the client base (by introducing skin-care lotion and hair condi-
tioner for babies)

• Increasing the products (by adding Pringles potato chips to a product mix of
cleaning and health care products)

• Changing the distribution networks (by adding drugstores to grocery stores)
• Using technology to manage just-in-time customer purchasing

INTERNATIONAL GROWTH Seeking new customers or markets by expanding internationally
is another growth option. Operating a business in a foreign country, particularly one that
is not in North America or Europe, may be challenging for the Western HR manager. The
HR implications for an international strategy are described in Chapter 11.

MERGERS AND ACQUISITIONS Quantum leaps in growth can be achieved through acquisi-
tions, mergers, or joint ventures. An acquisition occurs when one company buys another,
whereas a merger typically is seen as two organizations merging to achieve economies
of scale. Acquisitions and mergers have an obvious impact on HR: they eliminate
the duplication of functions, meld benefits and labour relations practices, and, most
importantly, create a common culture. The complexity of merging two companies is
outlined in Chapter 12.

STABILITY STRATEGIES

Some organizations may choose stability over growth. For many reasons, some executives,
particularly small business owners in relatively stable markets, wish to maintain the status
quo. They do not wish to see their companies grow. The executive team is content to
keep market share, doing what it has always been doing. HRM practices remain constant,

Acquisition
The purchase of one
company by another
Merger
Two organizations
combine resources and
become one

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NEL 9CHAPTER 1 Strategic Management

as they are presumed to be effective for current strategy. Others see this as a temporary
strategy (“Pause and proceed with caution”) until environmental conditions are more
favourable for growth. Or perhaps the organization grew very rapidly, and needs time
to manage all the changes. Both Microsoft and Apple had rapid growth, and are now
growing more slowly. We have not included chapters on stability strategies, because the
HRM issues would, by definition, be subsumed under another generic strategy.

Executives in other companies, recognizing that a current profitable situation will
not last forever, choose to milk the investment. This harvest strategy can also be seen
as a retrenchment strategy, because no investment or efforts will be made to make the
business grow; therefore, the goal will be restructuring.

Businesses can pursue several strategies over time or concurrently. Read HR Planning
Today 1.2 about the strategies implemented by Cara Operations.

Acquisitions typically achieve economies of scale.

Sm
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C
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HR PLANNING TODAY 1.2

MULTIPLE STRATEGIES

The mission statement of Cara Operations declares that its
aim is to be Canada’s leading integrated restaurant company.
Cara owns or controls food outlets such as Harvey’s, Swiss
Chalet, and Milestones Grill and Bar. Cara is an example of a
company employing multiple corporate strategies—through
acquisition, divestiture, and new concept development—
to achieve increased sales and profitability.

• Acquisitions: Cara began an aggressive acquisi-
tions strategy in 1999 when it bought 61 percent
of Kelsey’s, a Canadian company that owned
74 restaurants including Kelsey’s, Montana’s, and
Outback. In 2002, Cara bought the Second Cup
coffee chain and acquired a 74 percent stake
in Milestones, a chain of upscale restaurants.

(continued )

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Strategic Human Resources Planning NEL10

BUSINESS STRATEGIES
We discussed corporate strategy as corporate-wide plans used to manage and control the
various units that exist within an organization. But many large organizations operate
several businesses under the same or different names, and each of these might have its
own strategy. For example, Alcan Aluminum operates two “divisions” or businesses, one
that focuses on primary metals and one that focuses on fabrication. Each has a different
business strategy, although the overall corporate strategy is growth.

Business strategy focuses on one line of business (in a diversified company or public
organization), while corporate strategy examines questions about which competitive
strategy to choose as a multi-business corporation. Corporate strategies focus on long-
term survival and growth. Business strategy concerns itself with how to build a strong
competitive position. As Thompson and colleagues note, business strategy is the action
plan for a single line of business to gain competitive advantage.10

Corporate strategies and business strategies are differentiated in the following ways.
Corporate strategies are concerned with questions such as these: Should we be in busi-
ness? What business should we be in? Business strategies are concerned with questions
such as these: How should we compete? Should we compete by offering products at prices
lower than those of the competition or by offering the best service? Business strategy is
concerned with how to build a competitive position, and with the best way to compete
in that line of business. Air Canada was struggling with its business strategy when it
attempted to segment the market by creating a series of sub-brands—discount, high end,
and charter. The discount airline Zip and then Rouge were created to compete directly
with WestJet. Businesses try to demonstrate to the customer that their product or service
is better than their rivals’ because they have lower prices or more innovative services.

We will spend some time describing the strategic planning process, because HR pro-
fessionals are expected to understand the language of business and to be able to discuss
HR programs using the terminology of strategic planning. By learning the models and
terms used by managers in business, HR managers will be able to propose or defend
HR programs in ways that other managers will understand.

Business strategy
Plans to build a com-
petitive focus in one line
of business

In 2013, Cara merged with Fairfax to acquire con-
trol of Swiss Chalet and East Side Mario’s.

• Divestiture: In 2000, Cara sold its Beaver Food
Catering business. In 2001, it sold its health care
institutional food services division. In 2006, it sold
its airport terminal business as well as Second
Cup. It divested the Summit division (distribu-
tion company) in 2007. In 2010, it sold its air-
line catering business, Cara Airline Solutions,
to Gategroup, in order to focus its operation on
restaurants.

• Growth: Cara has divested its noncore businesses
and is focused on its restaurants. The divestitures
resulted in cash that will be used to expand the
number of restaurants. The growth strategy will
see an increase in restaurants and revenues in
the years ahead.

• Business strategy: Arjen Melis, president of corpo-
rate development at Cara, describes Cara’s busi-
ness strategy as “pursuing a portfolio of distinct
brands, each of which targets a differentiated
consumer segment.”

Sources: Adapted from www.cara.com, retrieved October 7, 2011; “Case Study: Cara Operations Ltd.,” National Post Business, October 2002,
pp. 47–50; interview with Arjen Melis, president of Corporate Development, Cara Operations Limited, May 27, 2008; “Cara Operations Selling Airline
Catering Business to Swiss Company Gategroup,” The Canadian Press, September 15, 2010; and “Cara Operations Ltd. Financial Profile,” Report on
Business Financial Profile, The Globe and Mail, April 21, 2011, p. B1.

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// THE STRATEGIC PLANNING PROCESS
A strategic plan describes the organization’s future direction, performance targets, and
approaches to achieve the targets.11 There are many models or approaches to the devel-
opment and implementation of strategy. Here is a useful framework of the steps that
are involved in strategic planning, which is also illustrated visually in Figure 1.2:12

1. Establish the mission, vision, and values.
2. Develop objectives.
3. Analyze the external environment.
4. Identify the competitive advantage.
5. Determine the competitive position.
6. Implement the strategy.
7. Evaluate the performance.

1. ESTABLISH THE MISSION, VISION, AND VALUES
A mission statement articulates the purpose for which, or the reason, an organization
exists.13 It also stipulates the value the organization offers for its customers and clients.14
For example, Alibaba’s mission statement is “to make it easy to do business anywhere.”

Many believe that conveying a strong sense of mission is the most important role for
the CEO. MacMillan Bloedel changed the company’s position by articulating this mission

Mission statement
An articulation of the
purpose of the organi-
zation and the value it
creates for customers

Who are we?

Step 1: Establish
the mission,

vision, and values

Where do we
want to be?

Step 2: Develop
objectives

How will we
measure success?

Step 7: Evaluate
the performance

What may
change?

Step 3: Analyze the
external environment

What programs will
result in success?

Step 6: Implement
the strategy

What is our
advantage?

Step 4: Identify
competitive
advantage

How can we
compete?

Step 5: Determine
the competitive

position

FIGURE 1.2

THE STRATEGIC PLANNING PROCESS

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Strategic Human Resources Planning NEL12

statement: “The most respected and environmentally responsible forest company in Canada,
and an example for others internationally. The public has granted us a license to operate, and
they have a right to expect that we will be responsible guardians of their renewable resource.”
See HR Planning Today 1.3 to find out if you can recognize some mission statements, and
see HR Planning Notebook 1.3 for an exercise to rate your organization’s mission statement.

A vision statement defines the organization’s long-term goals. The distinction between
a mission statement and a vision statement is that whereas the mission statement answers the
questions “Who are we? What do we do? Why are we here?,” the vision statement answers
the question “Where are we going?”15 A good vision statement sets a clear and compelling
goal that serves to unite an organization’s efforts. For example, the vision of Alibaba is “We
aim to build the future infrastructure of commerce. We envision that our customers will
meet, work and live at Alibaba, and that we will be a company that lasts at least 102 years.”16

Values are the basic beliefs that govern individual and group behaviour in an orga-
nization. While vision and mission statements answer the questions about what must
be accomplished, values answer the question “How must we behave?” For example, 3M
Company states, “We will grow by helping our customers win—through the ingenuity
and responsiveness of people who care.”

Vision statement
Defines an organiza-
tion’s long term goals
uniting the organiza-
tion’s efforts
Values
The basic beliefs that
govern individual and
group behaviour in an
organization

HR PLANNING NOTEBOOK 1.3

RATE YOUR ORGANIZATION’S MISSION STATEMENT

On a scale of 0–2, with 0 indicating “no,” 1 indicating
“somewhat,” and 2 indicating “yes,” evaluate your orga-
nization’s mission statement using the following questions:

1. Does the statement describe an inspiring purpose
that avoids playing to the self-serving interests of
stakeholders?

2. Does the statement describe the organization’s
responsibilities to stakeholders?

3. Does the statement define a business domain and
explain why it is attractive?

4. Does the statement describe the strategic posi-
tioning that the company prefers in a way that helps

(continued )

HR PLANNING TODAY 1.3

THE “PERSON ON A BUS TEST” OF MISSION STATEMENTS

A test of a good mission statement is its ability to pass the
“person on a bus test.” In other words, could an average
person correctly identify the company after reading its
mission statement? Can you guess which companies are
attached to these mission statements?

1. X will be a world leader in providing innovative phys-
ical and electronic delivery solutions, creating value
for our customers, employees and all Canadians.

2. Our mission: to inspire and nurture the human spirit—
one person, one cup and one neighborhood at a time.

3. To improve the lives of vulnerable people by mobi-
lizing the power of humanity in Canada and around
the world.

4. Build the best product, cause no unnecessary harm,
use business to inspire and implement solutions to
the environment crisis.

5. To create a better everyday life for many people.
6. To bring inspiration and innovation to every athlete

in the world.
Answers on page 26.

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NEL 13CHAPTER 1 Strategic Management

The mission, vision, and value statements of Cara, a leading food service and res-
taurant business, are presented in HR Planning Today 1.4.

Sometimes values reflect the founders’ ethics; sometimes they are just words
on a poster on the wall. In order to develop employee buy-in to values, invite
employees to participate in the elaboration of the organization values as described

to identify the sort of competitive position that it will
look for?

5. Does the statement identify values that link with the
organization’s purpose and act as beliefs with which
employees can feel proud?

6. Do the values resonate with and reinforce the orga-
nization’s strategy?

7. Does the statement describe important behaviours
and standards that serve as beacons of the strategy
and values?

8. Are the standards described in a way that enables
individual employees to judge when they are behaving
correctly?

9. Does the statement give a portrait of the company
capturing the culture of the organization?

10. Is the statement easy to read?

If the total is ten or less, then work is needed to improve
the mission statement. Fifteen or more!.!.!.!great job!

Source: Reprinted from Andrew Campbell, “Mission Statement,” Long Range Planning, Vol. 30, No. 6, pp. 931–932, 1997, with permission from Elsevier.

HR PLANNING TODAY 1.4

CARA’S MISSION, VISION, AND VALUE STATEMENTS

Mission

Enhancing stakeholder value and building leading busi-
nesses, by maximizing our resources and living our values
and principles.

Vision

To be Canada’s leading integrated restaurant company.

Values

Cara’s strength is based on our core values or fundamental
beliefs of: the importance of our people, self-responsibility,
integrity, a passion for winning and quality.

• People. Cara’s success begins with and endures
because of our teammates. We seek out good
people, help them grow and improve their skills,
appreciate their individuality and contributions,
and celebrate their achievements.

• Self-responsibility. Teammates take the initiative
to do what needs to be done. We take ownership
of our work and results, put forth our best effort,
and challenge what needs to be challenged. We
hold ourselves accountable, and blame no one.

• Integrity. We are committed to honesty and doing
the right thing. We say what we will do, do what
we say, and acknowledge when we are wrong or
have made a mistake.

• Passion for winning. Winning is much more than
luck. It is dedication, desire, enthusiasm for com-
petition, risk and hard work. We set our sights on
winning, and are passionate about being first in
all we do. Winners attract winners.

• Quality. We set high standards, and expect a level
of achievement that says “best-in-class,” so that
it becomes a state of mind and a way of life. We
always give our personal best, and continually
raise the bar on excellence.

Source: www.cara.com. Reprinted with permission.

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Strategic Human Resources Planning NEL14

in HR Planning Notebook 1.4. Then these values should be part of every orienta-
tion workshop and training course, and be modelled by all employees, especially
senior management. The articulation of values serves these important purposes:

• Conveys a sense of identity for employees
• Generates employee commitment to something greater than themselves
• Adds to the stability of the organization as a social system
• Serves as a frame of reference for employees to use to make sense of organiza-

tional activities and to use as a guide for appropriate behaviour

2. DEVELOP OBJECTIVES
At this stage, the management team develops short-term objectives to realize its high-level
mission, vision, and value. Objectives are an expression, in measurable terms, of what an
organization intends to achieve.17 Goals can be classified as hard or soft. Hard goals always

Strong and clear mission and vision statements enable all employees to work toward common goals.

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HR PLANNING NOTEBOOK 1.4

CREATING ORGANIZATIONAL VALUES

1. Invite all employees to offer ideas about the current
and the desired values for the organization.

2. Record these without judgments, criticisms, or
comments.

3. Have the group identify common themes.
4. Discuss and debate these themes, until there is con-

sensus on a short list of core values.
5. Have subgroups take one value, and develop a defini-

tion of the value and the employee behaviours related
to that value.

6. Have groups present their definitions and behaviours,
which may be adopted or revised.

7. Appoint one person from each team to incorporate
the revisions into a value statement, which is then
combined with all the value statements. These then
become the company values.

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NEL 15CHAPTER 1 Strategic Management

include numbers, usually relative to performance last year, or to competition. For example,
an organization would not state a goal as “increased profitability”; the statement would
be action oriented and specific: “to increase profitability in 2022 by 7 percent over 2021.”

HR Planning Notebook 1.5 offers some examples of typical objectives for corpora-
tions. Soft goals usually define the targets for the social conduct of the business, and may
not always be quantifiable. Soft goals may include being ethical and environmentally
responsible, and providing a working environment free of discrimination with oppor-
tunities for professional development. One of the most widely applied frameworks for
categorizing objectives is the balanced score card model, which divides organizational
strategy into four comprehensive perspectives: financial, customer, learning and growth,
and internal business process.18 An advantage of this framework, discussed more thor-
oughly in Chapter 14, is that it forces each organizational member to think about how
his or her actions can contribute to organizational strategy implementation.

3. ANALYZE THE EXTERNAL ENVIRONMENT
To achieve the company objectives, managers must be aware of threats and opportunities
in the external environment. By scanning and monitoring technology, laws and regulations,
the economy, sociocultural factors, and changing demographics, managers can make reactive
and proactive changes to the strategic plan. These will be discussed in detail in Chapter 3.

4. IDENTIFY THE COMPETITIVE ADVANTAGE
Besides the external environment, managers also need to consider what competitive
advantage the organization possesses—that is, what characteristics enable it to generate
more value for customers at a lower cost, thereby earning higher rates of profit than its
competitors.19 Competitive advantage normally derives from those resources that allow
the organization to perform more effectively or efficiently than competitors, which fall
into three categories:

• Tangible assets: These are future economic resources that have substance and
form from which an organization will benefit. Examples are land, inventory,
building, location, cash, and technology.

Competitive
advantage
The characteristics of
a firm that enable it
to earn higher rates
of profit than its
competitors

HR PLANNING NOTEBOOK 1.5

EXAMPLES OF HARD OBJECTIVES

• Profitability
• Growth (increase in sales, assets)
• Shareholder wealth (dividends plus stock price

appreciation)
• Market leadership (market share)

• Utilization of resources (return on investment [ROI]
or return on equity [ROE])

• Efficiency (cost per unit produced)
• Quality (percentage of waste; percentage

defective)

Source: Reprinted from Andrew Campbell, “Mission Statement,” Long Range Planning, Vol. 30, No. 6, pp. 931–932, 1997, with permission
from!Elsevier.

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Strategic Human Resources Planning NEL16

• Intangible assets: These are future economic resources that have been generated
from past organizational events. These assets lack substance and form. Exam-
ples are human capital, reputation, goodwill, trust, and copyright.

• Capabilities: These are a complex combination of people and processes that rep-
resent the firm’s capacity to exploit resources to achieve the firm’s objectives.20
Examples are managerial capabilities, innovative capabilities, marketing capa-
bilities, and organizational cultures. These capabilities—the collective skills,
abilities, and expertise of an organization—are the outcome of investments in
staffing, training, and other HR areas. They are stable over time and are not
easy to measure or benchmark; therefore, competitors cannot copy them.21

The resource-based view suggests that for these resources and capabilities to provide
a sustained competitive advantage, they must meet four criteria:22

1. They are valuable to the firm’s strategy (they help generate value/reduce cost).
2. They are rare (competitors don’t have them).
3. They are inimitable (they cannot easily be copied by competitors).
4. They can be organized by the firm (the firm can exploit the resources).

The acronym for this view is VRIO. The culture at Southwest Airlines meets all
these characteristics, as can be seen in HR Planning Today 1.5. Besides culture, many

Capabilities
A complex combination
of people and pro-
cesses that represent
the firm’s capacity to
exploit resources that
have been specially
integrated to achieve a
desired result

HR PLANNING TODAY 1.5

CULTURE AS A COMPETITIVE ADVANTAGE

Southwest Airlines’ strategy is that of low cost/low price/
no frills flights, a strategy that has resulted in profits every
year since 1974. The organization’s culture is its competi-
tive advantage, and possesses all the key characteristics.

Attribute: Valuable

Does the Southwest Airlines culture offer customers
something that they value? Yes. The culture results in
employees who are productive, flexible, motivated, and
willing to accept a low base pay and work long hours. This
not only keeps costs down but also improves utilization
and on-time delivery performance.

Attribute: Rare

Is Southwest Airlines the only one with this type of culture? If
not, is the level of its culture higher than that of competitors?
Yes. Each airline has its own culture but only the Southwest
culture has inspired employees to care so much about their
company that they accept very low base salaries, yet are
highly productive and flexible; work almost twice as long

and are more motivated than other airline’s employees;
and would rather support the company than the union. The
“family” at Southwest is just not found at other airlines.

Attribute: Imitability

Is it easy for other firms to acquire this culture? No.
Duplicating this culture is likely to be difficult. Although
others may think that they know what makes Southwest
employees so motivated, productive, flexible, and dedi-
cated, that may not be the case. Also, building the South-
west culture may have involved a series of events that are
impossible for another firm to re-create.

Attribute: Organize

Is the firm organized, ready and able to exploit the
resource? Yes. Southwest’s good position in relation to
suppliers and customers enables it to appropriate the value
from its extraordinary culture. Barring a major change that
diminishes the culture or reverses the relationship, South-
west should continue to make money.

Source: Allan Afuah, Business Models. A Strategic Approach © 2004, Table 10.4, p. 207. Reproduced with the permission of McGraw-Hill Education.

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NEL 17CHAPTER 1 Strategic Management

other forms of resources have a potential to meet all four criteria. For example, the
innovative capabilities embedded in employees’ specialized expertise, knowledge-sharing
routines, and incentive systems for innovation are unique to the organization; and
customers’ trust in the brand name, created by a cumulated history of ethical behav-
iours of the business and its employees, is not transferable. Some common reasons for
these resources and capabilities being a source of sustained competitive advantage are:
they are unique, they must be built up over time, they require large-scale investment,
and they are socially complex.23 As you can see, human resources play a key role in
creating most capabilities.

Resources and capabilities become core competencies when they serve as a
firm’s competitive advantage. Core competencies distinguish a company competi-
tively and reflect its personality.24 In other words, a core competency is a competi-
tively important activity that directly contributes to a company’s strategy.25 The core
competency of Southwest Airlines is culture and that of Sony is miniaturization.
Walmart’s core competency is its cross-docking inventory management system,
which helps it reduce costs. Kimberly- Clark is the best in the world at producing
paper-based consumer products, choosing to specialize in category-killer brands
(where the name of the product is synonymous with the name of the category—for
example, Kleenex).26

Core competencies can be leveraged. For example, when Amazon.com developed
the competency to sell books through the Internet, it leveraged this competency to
deliver other consumer products. HR managers should be particularly aware of how to
contribute to the creation of core competencies.

What if the competencies needed for gaining competitive advantage constantly
evolve? In fact, many companies face this difficulty when they continuously compete to
seize emerging market opportunity or develop new technology. Dynamic capabilities—
the ability to adapt and renew competencies in accordance with changing business
environment27—are particularly important in these situations. Being able to regenerate
its competencies responsively, Amazon.com started online bookselling in 1998, more
than a decade earlier than Borders. Amazon.com was also the first to pioneer digital
books with the Kindle e-reader in 2007, three years earlier than Borders. Borders’ lack
of dynamic capabilities to regenerate itself, in contrast, was one of the main reasons
for its bankruptcy.28

With the information from external environment and internal competence anal-
ysis, managers can summarize the conclusions using a SWOT analysis, which is a tool
for analyzing a company’s resource capabilities and deficiencies, its market oppor-
tunities, and the external threats to its future.29 SWOT is an acronym for Strengths,
Weaknesses, Opportunities, and Threats. A strength is something that a company does
well or an attribute that makes it more competitive. A weakness is something that an
organization does poorly, or a condition, such as location, that puts it at a disad-
vantage relative to competitors.30 Opportunities and threats are environmental condi-
tions external to the firm that may be beneficial or harmful. But an organizational
strength can be used to combat an external threat. For example, the very capable legal
department (a strength) of Texas Instruments was able to collect nearly $700 million
in damages and royalties from Korean and Japanese firms that were infringing on its
copyright (a threat). Sometimes an external indicator, such as a rising concern with
personal health, may be beneficial for one sector (health clubs) and harmful to others
(tobacco companies).31

Core competencies
Resources and capa-
bilities that serve as
a firm’s competitive
advantage

Dynamic capabilities
The ability to adapt and
renew competencies
in accordance with
changing business
environment

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Strategic Human Resources Planning NEL18

5. DETERMINE THE COMPETITIVE POSITION
On the basis of the external environment and internal competence, managers then decide
the competitive position the company wants to achieve. A company cannot usually
compete by being ready to offer any product or service at various prices through mul-
tiple channels of distribution. The senior managers must determine who the customers
are, where they are located, and what product or service characteristics these customers
value. Thus the organization has to create a value proposition—a statement of the fun-
damental benefits it has chosen to offer in the marketplace. The value proposition of
TD Bank’s Green Line Investor services was very simple: lower-cost transactions than
through traditional brokerage channels.

Michael Porter made a major contribution to the field of strategic management by
grouping the many ways in which organizations can compete into five generic competi-
tive strategies:32

1. Low-cost provider strategy: The goal here is to provide a product or service at
a price lower than that of competitors while appealing to a broad range of
customers. Fast-food businesses use this strategy almost exclusively. A range
of customers from toddlers to seniors consumes the cheap hamburger, a
good but basic product with few frills. A company competing on this basis
searches continually for ways to reduce costs.

2. Broad differentiation strategy: An organization employing this strategy seeks to
differentiate its products from competitors’ products in ways that will appeal
to a broad range of buyers. It searches for features that will make its product or
service different from that of competitors and that will encourage customers to
pay a premium. Thus, Burger King will introduce the Whopper with “frills,” for
which people will pay an extra dollar. The goal is to provide a unique or supe-
rior value to the buyer in terms of product quality, product features, or service.

3. Best-cost provider strategy: The goal here is to give customers more value for
their money by emphasizing a low-cost product or service and an upscale
differentiation. The product has excellent features, including several upscale
features that are offered at low cost. East Side Mario’s offers hamburgers but
presents them on a plate, with extras such as potato salad, served by a waiter
in an attractive setting featuring focused lights and art on the walls.

4. Focused or market niche strategy based on lower cost: The goal here is to offer a low-
cost product to a select group of customers. Red Lobster uses this approach,
selling fish and seafood at reasonable prices to a narrow market segment.

5. Focused or market niche strategy based on differentiation: Here, the organization
tries to offer a niche product or service customized to the tastes and require-
ments of a very narrow market segment. For example, Pied au Cochon in
Montreal sells a $39 hamburger that uses sirloin meat and fois gras.

Under Porter’s schema, business strategy concerns itself with the product and market
scope. What particular goods and services are to be provided? What distinguishing
features or attractive attributes will characterize these products and services? Typical
product characteristics are cost, quality, optional features, durability, and reliability.
Market dimensions refer to the characteristics of the target market—size, diversity, buying
patterns, and geographic regions. The model has been criticized for its overlapping cat-
egories. Most textbooks on strategy suggest that there are really only three competitive
positions: cost, differentiation, and focus.

Value proposition
A statement of the
fundamental benefits of
the products or services
being offered in the
marketplace

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NEL 19CHAPTER 1 Strategic Management

6. IMPLEMENT THE STRATEGY
Strategy implementation is the process of establishing the programs, budgets, and procedures
for facilitating the achievement of the strategic goals. If the goal is growth, what are the tech-
niques for achieving this goal? Should a company expand its distribution channels to other
regions? Should it attempt to change its culture? Strategy implementation is the process
by which the strategy is put into action. This process is sometimes called operational plan-
ning. It consists of programs, budgets, and procedures, such as those for HR. The program
outlines the steps or activities necessary to accomplish the goal. If the goal is innovation,
how can HR recruit, select, train, and create a supportive culture to accomplish it? The role
of the HR function in enabling the execution of strategy is discussed in Chapter 2. The
budget lists the detailed costs of each program, and defines how the organization is going
to allocate its financial resources. Most organizations establish a hurdle rate, the percentage
of return on investment necessary before a program is implemented. As you will see in
Chapter 14 on evaluation, most HR managers are very skilled at preparing a budget for
the implementation of a new program, but unable to discuss, in dollars, the rate of return
for the program. Procedures list the steps required to get the job done. Most HR profes-
sionals use procedures—for example, the procedure to recruit a university student—based on
experience. But other functional areas would have these procedures established as standard
operating practice; these would be applied uniformly across the company, in every site.

7. EVALUATE THE PERFORMANCE
Developing a strategy is easy; making it happen is not. The ability to execute strategy
is becoming a more important criterion for assessing not only managers but also the
whole organization. The successful implementation of a strategy is judged by the ability

Strategy
implementation
The process by which
a strategy is put into
action
Program
The steps or activities
necessary to accom-
plish a goal
Procedures
The steps required to
get a job done

There are many benefits to formulating and evaluating organizational strategy.

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Strategic Human Resources Planning NEL20

to meet financial targets such as profits, and the ability to meet benchmarked ratios of
efficiency and effectiveness such as R&D expenses to sales, or sales to assets. As you will
see in Chapter 14, companies are using the balanced scorecard approach to evaluate other
important indicators of success, such as customer satisfaction or employee engagement.
These measures are becoming increasingly valuable for their ability to predict financial
and operational performance.

BENEFITS OF STRATEGY FORMULATION
Working through the strategic planning process has these benefits:

• Clarity: There is focused and guided decision making about resource
allocations.

• Coordination: Everyone is working toward the same goals.
• Efficiency: Daily decision making is guided toward the question “Does it fit

with our strategy?”
• Incentives: Employees understand the behaviours and performance that will be

rewarded.
• Adjustment to change: If a major change is under consideration, understanding

the current strategy is essential.
• Career development: Helps potential employees decide if they want to work for

the company, if there is a skills fit, and what training and development they
will need to undergo.

Organizations that do not see the benefits of strategic planning have succumbed
to these errors:

• Relegating the process to official planners, and not involving executives and
managers (and even employees), resulting in no buy-in.

• Failing to use the plan as the guide to making decisions and evaluating
performance.

• Failing to align incentives and other HR policies to the achievement of the
strategy.

An understanding of the strategic planning process is the essential first step to
creating an HR strategy that makes sense for the organization. Strategic HR planning
complements the traditional approach to HR planning (forecasting supply and demand)
but adds more strategic choices. Thus, at the most senior levels of the corporation, HR
professionals move from an administrative role to the role of strategic partner. They
understand strategies and business needs and create the kind of HR competencies that
build competitive advantage.

The strategic planning model has dictated the structure of this text. We emphasize
aligning HR strategy with business strategy (Chapter 2); monitoring and analyzing external
factors (Chapter 3); assessing the strengths and weaknesses of organizations’ human
resources (Chapters 4–8); the ways to implement an organizational change (Chapter 9),

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21CHAPTER 1 Strategic Management NEL

Information Technology
for HRM

(8)

Note: Chapter numbers in parentheses

Forecasting
(4)

Demand
(5)

Supply
(6)

Restructuring
(10)

Organizational
Change

(9)

International
HRM
(11)

Mergers and
Acquisitions

(12)

Outsourcing
(13)

Organizational
Strategy

(1)

HRM Strategy
(2)

Program
Evaluation

(14)

The Environment
(3)

Strategic
Options

Succession
Management

(7)

FIGURE 1.3

AN OVERVIEW OF THE ORGANIZATION OF THE TEXTBOOK

// SUMMARY
It is important that HR professionals appreciate the role of strategic planning in their
organizations and understand the language and terminology of strategic planning. A
strategy is a planned process whereby organizations can map out a set of objectives
and methods of meeting those objectives. A strategy may be intended—formulated at
the beginning of the process—or realized—what actually happens. The strategy may also
be emergent; that is, it is changing as necessary to deal with environmental changes.
Corporate or company-wide strategies are concerned with the long-term view of the
organization. Business strategies focus on one line of business, building a strong com-
petitive position. One useful framework is a seven-step approach (see Figure 1.2). By

which will help with the following chapters that deal with determining the HR impli-
cations of corporate strategies such as restructuring (Chapter 10), going international
(Chapter 11), mergers and acquisitions (Chapter 12), outsourcing (Chapter 13), and
assessing the effectiveness of these efforts (Chapter 14). Figure 1.3 graphically summarizes
the organization of this book.

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22 NELStrategic Human Resources Planning

understanding strategy language and models, the HR professional can work with other
executives to implement HR practices that enable strategy.

KEY TERMS
acquisition p. 8
bankruptcy p. 7
business strategy p. 10
capabilities p. 16
competitive advantage p. 15
core competencies p. 17
corporate strategy p. 6
divestiture p. 7
dynamic capabilities p. 17
emergent strategy p. 4
intended strategy p. 4
liquidation p. 7
merger p. 8
mission statement p. 11
procedures p. 19
program p. 19
realized strategy p. 4
strategy p. 3
strategy implementation p. 19
turnaround strategy p. 6
value proposition p. 18
values p. 12
vision statement p. 12

DISCUSSION QUESTIONS
1. Identify companies currently operating under these corporate strategies:

restructuring—turnaround, divestiture, liquidation, and bankruptcy; and growth—
incremental, international, and mergers and acquisitions.

2. Review these three mission statements and assess whether they meet the “person
on a bus” test.
• To provide book lovers and those they care about with the most inspiring retail

and online environments in the world for books and life-enriching products
and services.

• X is dedicated to building a world-class national resource enabling Canadians
to know their country and themselves through their published heritage, and
to providing an effective gateway to national and international sources of
information.

• X is an independent campaigning organization that uses nonviolent, creative
confrontation to expose global environmental problems and to force the solu-
tions essential to a green and peaceful future.

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23CHAPTER 1 Strategic Management NEL

3. The focus in this chapter (and in strategy literature) is on private companies. Check
the websites of government departments and identify at least 10 strategies (often
called plans or mission statements). Can you identify any that correspond to some of
the models of business strategies? Can you create a model or typology for public-
sector organizations? To start, consult J. Tomkins, “Strategic Human Resources
Management in Government: Unresolved Issues,” Public Personnel Management,
Vol. 31, No. 1 (2002): 95–110.

EXERCISES
1. Identify two companies working in the same sector (hotels, restaurants, and post-

secondary institutions are good choices), one using a low-cost provider strategy and
one using a differentiation strategy.

2. Research these two companies’ mission, vision, and value statements.
3. Discuss their differences in resources, capabilities, and core competencies.
4. Compare and contrast the practices of the two companies.

CASE STUDY LOBLAW COMPANIES LTD.

The Canadian food retailing sector had been growing at less than 1 percent a
year, and in 2012 it was a $86 billion business. There are a number of competitors
in this sector, including Sobeys, Metro, Costco Canada, Canada Safeway, and
Walmart Canada. Loblaw Companies is Canada’s largest food distributor with sales
of more than $32 billion, 1000 stores, and 136 000 employees. The organizational
objectives were to control costs through efficiencies and differentiate its products
(through private-label brands such as President’s Choice, No Name, Organics PC,
and Joe Fresh) and its stores (through 22 different brand banners such as Loblaw,
Fortinos, No Frills, Provigo, Zehrs, Wholesale Club, and Atlantic Superstore). In
2009, it acquired T&T, the largest Asian foods chain, to capitalize on the growing
ethnic food market. In 2013, it acquired Shoppers Drug Mart. In 2016, Amazon
purchased Whole Foods and threatens to disrupt the grocery business. To compete,
Loblaws initiated a “click and collect” on fresh grocery orders. At the same time,
governments are increasing the minimum wage, which will increase its labour costs
by $190 million annually.

The largest threat to Loblaw’s strategy is Walmart, the world’s largest retailer. The
latter has a growth strategy, opening hundreds of stores every year. Walmart arrived in
Canada in 1994, by acquiring 122 Woolco stores. Walmart not only used size and scale
to compete (as did other retailers) but also mastered the use of technology to drive
costs down. For example, its centralized information system tracked the operations of
5000 stores worldwide, and linked them with about 30 000 suppliers, all in real time.

Sources: Shaw, H. “Loblaw taking stock of very compelling threat of Amazon, CEO,” businessfinancial-
post.com, retrieved September 19, 2017; www.loblaws.com; “Loblaw Companies Limited: Company
Profile,” www.datamonitor.com; Z. Olyjnk, “Look Who’s Eating Loblaw’s Lunch,” Canadian Business,
Vol. 80, No. 5 (February 26, 2007): 44; and http://www.canadiangrocer.com/top-stories/state-of-the-
canadian-grocery-industry-31101, retrieved November 28, 2014.

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24 NELStrategic Human Resources Planning

QUESTION

1. Conduct a SWOT analysis for Loblaw. As a group, assess the company
against the strengths, weaknesses, threats, and opportunities contained
in the SWOT matrix below.

SWOT ANALYSIS
Potential Resource Strengths and Competitive Capabilities

• A powerful strategy • Superior intellectual capital relative to
key rivals

• Core competencies in
____________________

• Cost advantages over rivals

• A distinctive competence in
___________________

• Strong advertising and promotion

• A product that is strongly differentiated
from those of rivals

• Product innovation capabilities

• Competencies and capabilities that are
well matched to industry key success
factors

• Proven capabilities in improving
production processes

• A strong financial condition; ample
financial resources to grow the business

• Good supply-chain management
capabilities

• Strong brand-name image/company
reputation

• Good customer service capabilities

• An attractive customer base • Better product quality relative to
rivals

• Economy of scale and/or learning and
experience curve advantages over rivals

• Wide geographic coverage and/or
strong global distribution capacity

• Proprietary technology/superior techno-
logical skills/important patents

• Alliances/joint ventures with other
firms that provide access to valuable
technology, competencies, and/or
attractive geographic markets

POTENTIAL MARKET OPPORTUNITIES

• Openings to win market share from rivals • Expanding the company’s product
line to meet a broader range of cus-
tomer needs

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25CHAPTER 1 Strategic Management NEL

• Sharply rising buyer demand for the
industry’s product

• Utilizing existing company skills
or technological know-how to
enter new product lines or new
businesses

• Serving additional customer groups or
market segments

• Online sales

• Expanding into new geographic markets • Integrating forward or backward

• Falling trade barriers in attractive foreign
markets

• Entering into alliances or joint
ventures that can expand the
firm’s market coverage or boost its
competitive capacity

• Acquiring rival firms or companies with
attractive technological expertise or
capabilities

• Openings to exploit emerging new
technologies

POTENTIAL RESOURCE WEAKNESSES AND COMPETITIVE
DEFICIENCIES

• No clear strategic direction • Behind on product quality, R&D,
and/or technological know-how

• Resources that are not well matched to
industry key success factors

• In the wrong strategic group

• No well-developed or proven core
competencies

• Losing market share because

• A weak balance sheet; too much debt • Lack of management depth

• Higher overall unit costs relative to key
competitors

• Inferior intellectual capital
relative to leading rivals

• Weak or unproven product innovation
capabilities

• Subpar profitability because
______________

• A product/service with ho-hum attributes
or features inferior to those of rivals

• Plagued with internal operating
problems or obsolete facilities

• Too narrow a product line relative to rivals • Behind rivals in e-commerce
capabilities

• Weak brand image or reputation • Short on financial resources to
grow the business and pursue
promising initiatives

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26 NELStrategic Human Resources Planning

ANSWERS TO HR PLANNING TODAY 1.3
1. Canada Post
2. Starbucks
3. Canadian Red Cross
4. Patagonia
5. IKEA
6. Nike

// REFERENCES
1. HBC. “Our History.” http://www.hbcheritage.ca/hbcheritage/history/over-

view.asp. Retrieved October 17, 2014.

2. Collis, D.J., and M.F. Rukstad. 2008. “Can You Say What Your Strategy Is?”
Harvard Business Review, Vol. 86: 82–90.

3. Anthony, W.P., P.L. Perrewe, and K.M. Kacmar. 1993. Strategic Human
Resources Management. Fort Worth, TX: Harcourt Brace Jovanovich.

4. Quinn, J.B. 1980. Strategies for Change: Logical Incrementalism. Homewood, IL:
Richard D. Irwin.

5. Collins, J. 2001. Good to Great. New York: Harper Business.

• Weaker dealer network than key rivals
and/or lack of adequate global distribution
capability

• Too much underutilized plant
capacity

• Increasing intensity of competition
among industry rivals may squeeze profit
margins

• Likely entry to potent new
competitors

• Slowdowns in market growth • Loss of sales to substitute
products

• Growing bargaining power of customers
or supplies

• Restrictive trade policies on the
part of foreign governments

• A shift in buyer needs and tastes away
from the industry’s product

• Costly new regulatory
requirements

• Vulnerability to industry driving forces • Increased costs relating to utilities

Source: Thompson, Strickland, and Gamble, Crafting and Executing Strategy 14/e, Figure 2.2, p. 35,
© 2005. Reprinted with the permission of McGraw-Hill Education.

01_ch01.indd 26 7/31/18 8:28 PM

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k _w� `c� qsnnpcqqcb� dpmk � rfc� [email protected] � _l b-mp� cAf_nrcp&q’,� Lcjqml � Cbsa_rgml � pcqcpt cq� rfc� pgefr� rm� pck mt c� _bbgrgml _j� aml rcl r� _r� _l w� rgk c� gd� qs`qcoscl r� pgefrq� pcqrpgargml q� pcosgpc� gr,

27CHAPTER 1 Strategic Management NEL

6. Lengnick-Hall, C., and M. Lengnick-Hall. 1990. Interactive Human Resource
Management and Strategic Planning. New York: Quorum Books.

7. Duane, M.J. 1996. Customized Human Resource Planning. Westport, CT:
Quorum Books.

8. Thompson, A.A., M.A. Peteraf, J.E. Gamble, and A.J. Strickland. 2010.
Crafting and Executing Strategy: The Quest for Competitive Advantage (18th ed.).
New York: McGraw-Hill Companies.

9. http://www.theglobeandmail.com/globe-investor/target-heads-north-in-
zellers-deal/article1868308. Retrieved March 28, 2011.

10. Thompson et al. 2010.

11. Ibid.

12. Woodcock, C.P., and P.W. Beamish. 2003. Concepts in Strategic Management
(6th ed.). Toronto: McGraw-Hill Ryerson.

13. Certo, S.C., and J.P. Peter. 1993. Strategic Management: A Focus on Process
(2nd ed.). Boston: Irwin.

14. Kaplan, R.S., and D.P. Norton. 2008. “Mastering the Management System.”
Harvard Business Review, January: 64–77.

15. Certo and Peter. 1993.

16. http://www.alibabagroup.com/en/about/overview. Retrieved November 17,
2014.

17. Crossan, M.M., J.N. Fry, and J.P. Killing. 2002. Strategic Analysis and Action
(5th ed.). Toronto: Prentice Hall.

18. Kaplan, R.S., and D.P. Norton. 2007. “Using the Balanced Scorecard as
a Strategic Management System.” Harvard Business Review, July/August:
150–161.

19. Peteraf, M.A., and J.B. Barney. 2003. “Unraveling the Resource-based
Tangle.” Managerial & Decision Economics, Vol. 24: 309–323.

20. Hitt, M.A., R.D. Ireland, R.E. Hoskisson, W.G. Rowe, and J.P. Sheppard.
2002. Strategic Management, Competitiveness and Globalization Concepts.
Toronto: Nelson Thomson Learning.

21. Ulrich, D., and N. Smallwood. 2004. “Capitalizing on Capabilities.” Harvard
Business Review, June: 119–127.

22. Barney, J.B. 1995. “Looking Inside for Competitive Advantage.” Academy of
Management Executive, Vol. 9: 49–61; Collis, J., and C.A. Montgomery. 1995.
“Competing on Resources: Strategy in the 1990s.” Harvard Business Review,
Vol. 73, No. 4 (July/August): 118–128.

23. Collis, D.J., and C.A. Montgomery. 2008. “Competing on Resources.”
Harvard Business Review, Vol. 86: 140–150.

24. Hoskisson, R.E., M.A. Hitt, and R.D. Ireland. 2004. Competing for Advantage.
Mason, OH: Thompson South-Western.

25. Thompson et al. 2010.

01_ch01.indd 27 7/31/18 8:28 PM

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k _w� `c� qsnnpcqqcb� dpmk � rfc� [email protected] � _l b-mp� cAf_nrcp&q’,� Lcjqml � Cbsa_rgml � pcqcpt cq� rfc� pgefr� rm� pck mt c� _bbgrgml _j� aml rcl r� _r� _l w� rgk c� gd� qs`qcoscl r� pgefrq� pcqrpgargml q� pcosgpc� gr,

28 NELStrategic Human Resources Planning

26. Collins. 2001.

27. Teece, D.J., G. Pisan, and A. Shuen. 1997. “Dynamic Capabilities and
Strategic Management.” Strategic Management Journal, Vol. 18: 509–533.

28. Kary, T., and L. Sandler. 2011. “Borders Files Bankruptcy, Is Closing
Up to 275 Stores.” http://www.bloomberg.com/news/2011-02-16/borders-
book-chain-files-for-bankruptcy-protection-with-1-29-billion-debt.html
(February 16). Retrieved March 7, 2018.

29. Thompson et al. 2010.

30. Ibid.

31. Dess, G.G., and G.T. Lumpkin. 2003. Strategic Management: Creating
Competitive Advantages. Boston: McGraw-Hill.

32. Porter, M.E. 1985. Competitive Advantage. New York: Free Press.

01_ch01.indd 28 7/31/18 8:28 PM

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NEL

CHAPTER

2

CHAPTER LEARNING OUTCOMES
AFTER READING THIS CHAPTER, YOU SHOULD BE ABLE TO:

• Understand the importance of strategic HR planning.
• Identify the risks associated with not planning.
• Discuss approaches to linking strategy and HR, including the barriers to

becoming a strategic partner.
• List the characteristics of an effective HR strategy.

ALIGNING HR WITH
STRATEGY

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Strategic Human Resources Planning NEL30

// STRATEGIC HRM
Human resources management (HRM) can be viewed as an umbrella term that encom-
passes the following:

• Overarching HR philosophies that specify the values that inform
an organization’s policies and practices

• Formal HR policies that direct and partially constrain the development
of specific practices, such as to increase workforce diversity

• Specific HR practices, such as recruitment, selection, and appraisal

Strategic HRM is the management of HR philosophies, policies, and practices
to enable the achievement of the organizational strategy. Ideally, these philosophies,
policies, and practices form a system that attracts, develops, motivates, and trains
employees who ensure the survival and effective functioning of the organization and
its members.1 As described in the opening vignette, some think the discipline of
HRM should be split into two areas, much like accounting and finance or sales and
marketing.2 One area would deal with transactional activities, such as payroll, which
are routine but necessary, just like accounting. The second area would function like
a decision science, concerned with the effective utilization of human capital, much
like finance. In this model, strategic HRM would be concerned with decisions about
HR practices, the composition and behaviours of employees, and the effectiveness of
these decisions given various business strategies.3 These strategic activities are compre-
hensive, are planned, and in their contribution to organizational success are considered
high-long-term-value-added.4

While managers recognize implicitly that the marketing strategy must support the
business strategy, there is not the same sense among managers that HR programs can
be designed to support the organizational strategy. And yet human capital issues are at
the top of the CEO agenda, with more than half of the top priorities (attraction, reten-
tion, innovation) needing HR input.5 According to recent surveys, three-quarters of
Canadian organizations believe that HR is more influential now than five years ago; the

Strategic HRM
Interrelated philosophies,
policies, and practices
that facilitate the attain-
ment of organizational
strategy

Johnson and Johnson is a multinational manufacturer of
consumer goods and pharmaceutical products. Its prod-
ucts are sold in over 175 countries and it operates in
60 countries. The HR department is currently being reor-
ganized. Administrative, transactional work is outsourced
to locations such as Prague and Manila. The corporate
centre focuses on talent management. For example,
J & J does 25 000 job placements each year. One group,
the data analytics group, with 15 people, researches what
are the best predictors of employee success, which of
course, is directly linked to organizational success. This

group of analysts identifies the best HR practices and
implements them worldwide. These HR practices con-
tribute to the success of the organization’s strategy. The
structure of the HR departments reflects the emerging
trend to separate (and possibly outsource) transactional
work, and focus on strategic HR.

Source: https://en.wikipedia.org/wiki/Johnson_%26_Johnson;
http://www.hrmonline.ca/hr-general-news/hr-transformation-

underway-at-johnson-and-johnson-225261.aspx.
Retrieved September 20, 2017.

HR STRUCTURE AT JOHNSON AND JOHNSON

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NEL 31CHAPTER 2 Aligning HR with Strategy CHAPTER 2 Aligning HR with Strategy

reorganization of HR importance is especially higher among CEOs and senior managers
(about three-quarters believe so) than other managers (about half).6

// THEORIES OF THE STRATEGIC MANAGEMENT
OF HUMAN RESOURCES
HR practitioners themselves do not seem to value theory. HR is seen as atheoretical
and problem driven.7 But the field is young, and perspectives are indeed emerging that
can be seen as providing the theoretical underpinnings.

HRM MAKING STRATEGIC CONTRIBUTIONS
Human resources management, formerly called “personnel management,” started as an
administrative function and has traditionally been associated with costs in organizations.
Its contributions were often measured by the number of disputes resolved, applicants
recruited, total hours spent on training etc. It is no wonder that many organizations
attempted to minimize the size of the HR department by outsourcing administrative
tasks to external vendors.

During the 1980s, strategic HR researchers and practitioners started to wonder
whether HRM could make strategic contributions to organizations. Certain “high-
performance” HR practices, such as selective hiring, extensive training, and competi-
tive pay, came to be considered “best practices,” because they were often found in the
most successful organizations.8 Cumulated research showed consistent evidence that
the implementation of high-performance HR systems significantly predicted various
organizational performance indicators, ranging from reduced employee turnover to
improved quality and organizational performance.9

This perspective stimulated a broad implementation of high-performance HR sys-
tems in many businesses, as managers began to believe that investment in HR would
eventually lead to higher financial performance. The term human resources was adopted,
reflecting the recognition of personnel as valuable “resources” that create competitive
advantage, an idea that can be traced back to the resource-based view.

RESOURCE-BASED VIEW

The resource-based view was introduced in Chapter 1, in which the culture of Southwest
Airlines was described as a resource that provided a sustained competitive advantage,
because its culture is valuable, rare, and very difficult to imitate or substitute. The less
a resource can be imitated, the more durable the source of competitive advantage. In
addition to culture, a firm’s human resources can create sustained competitive advan-
tage if they meet all four criteria suggested by the resource-based view. First, employees
who have superior performance because of their skills, commitment, or flexibility are
valuable—they help the company beat out competitors by offering better service/unique
products or reducing costs. The employee loyalty of Marks & Spencer, for example,
helped reduce its labour costs to 8.7 percent, against an industry average of 10 to
20 percent. This dramatically added value to the company.10

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Strategic Human Resources Planning NEL32

Second, human resources can be difficult for competitors to imitate. If IBM introduces
a new software package in January, Microsoft can probably imitate or duplicate this
package by February of the same year. However, if IBM technical support people are
trained and motivated to provide “knock-your-socks-off service,” Microsoft will have a
difficult time imitating this workforce within a month. Indeed, Porter estimates that it
takes approximately seven years to duplicate a competitive edge in human resources. The
competition can’t just “buy” these employees, because their effectiveness is embedded
in the HR systems of training, compensation, performance appraisal, and culture that
allow them to work productively.11

Third, the best human resources are rare. “Talent war” describes the fierce competi-
tion among firms, especially in the high-technology industry, for the best talent. Almost
80 percent of Canadian organizations indicated that they had difficulty recruiting quality
candidates with skills that were important to the organization or in high demand.12 More
reputable employers known for their advantage in attracting, developing, and keeping
good talent are more likely to gain access to the best talent on the market.

Finally, the value of human resources can be hard to substitute. As discussed in
Chapter 1, dynamic capabilities are critical for today’s businesses to continuously lead
the competition. Dynamic capabilities allow businesses to be the first to discover new
opportunities, to act faster than others to seize opportunities, and to quickly create
the internal processes needed to realize these opportunities.13 Other resources such as
technology and physical resources do not have free will, and thus cannot substitute
for decisions and changes made by human resources.14 Take, for example, the compe-
tition between Apple and Nokia. Nokia was once known for its superior technology
in producing the most reliable hardware. However, technology and resources do not
regenerate by themselves. Yesterday’s cutting-edge technology can become inadequate
today. Apple bested Nokia in accurately sensing the potential market for smartphones,
swiftly entering the business, and successfully regenerating its technology to become
competitive in the market, largely due to the dynamic capabilities created by its human
resources. The HR department’s role, then, is to develop a system that will facilitate
and stimulate innovative thinking processes.

Therefore, a firm’s human resources are more valuable for sustained competitive
advantage than technological and physical resources, particularly in today’s competi-
tive and fast-changing environment, because human resources are less visible, more
complex, and can initiate change.15 For these reasons, human resources are increasingly
perceived as strategic resources. Given the unlimited potential of HR, how to exploit
it is explained by the contingency perspective.

THE CONTINGENCY PERSPECTIVE
In Chapter 1 we learned that business strategies ranged from low cost to high differ-
entiation. Although high-performance HR practices in general contribute to high per-
formance, they may be more cost effective for businesses that pursue a differentiation
strategy than for those implementing a low-cost strategy. This is called the contingency
perspective of HRM. It is not difficult to imagine that employees working at Ritz-Carlton
would be very different from those working at Comfort Inn: they vary in their human
capital (e.g., communication skills), as well as in the behaviours (e.g., customer orien-
tation) that they display to customers. Such employee differences are largely shaped
by the HR practices in place, and can be explained by the human capital and behav-
ioural theories.

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NEL 33CHAPTER 2 Aligning HR with Strategy CHAPTER 2 Aligning HR with Strategy

HUMAN CAPITAL THEORY

Classical economists describe three types of resources or inputs used in the production
of goods and services: land, capital, and labour. Labour, or human capital, refers to the
collective sum of the attributes, experience, knowledge, and commitment that employees
choose to invest in their work. This intangible asset comprises the knowledge, educa-
tion, vocational qualifications, professional certifications, work-related experience, and
competence of an organization’s employees.16 As researchers have noted, “In the new
economic paradigm, as the demands for continuous change make innovation, adapt-
ability, speed and efficiency essential features of the business landscape, the strategic
importance of intellectual capital and intangible assets [has] increased substantially.
While these assets are largely invisible . . . the sources are not. They are found in the
human capital of the firm’s employees.”17 From the perspective of human capital,
employees are viewed as a capital resource that requires investment.18

Employees are of value to the organization to the extent that they work toward
accomplishing organizational objectives. Costs incurred in training, motivating, com-
pensating, and monitoring employees can be viewed as investments in human capital,
just as maintenance of equipment is an investment in the capital of the firm.19 Thus,
human capital’s value added can be estimated by

2 !Total revenue (operating expenses total compensation costs)
Total compensation costs

Using this formula, it was estimated that the median human capital return on invest-
ment for Canadian organizations was $2.26, meaning that each dollar organizations

Human capital
The sum of employees’
knowledge, skills,
experience, and com-
mitment invested in the
organization

These scientists represent the human capital of their organization.

©
T

ho
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as
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ar
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et

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Strategic Human Resources Planning NEL34

invested on human capital generated $2.26 in return. Human capital return on invest-
ment also varied by industry, with finance, insurance, and real estate having the highest
median return ($6.89), followed by manufacturing and construction ($2.19), and whole-
sale and retail trade ($2.02).20 It is reasonable to expect that human capital return on
investment would also vary by strategy, with differentiated organizations generating a
higher return than low-cost organizations.

The advantages of an organization with effective HR practices may come not only
from having better resources but also from making better use of these resources by
achieving higher productivity per worker and matching the capabilities of employees
with the strategy.21 Organizations that compete on service excellence, for example,
would invest in service-related human capital. Banks that invested in HR systems for
service quality, such as selecting, training, and rewarding employees’ service-related
skills, had superior service-related human capital and subsequently higher customer
evaluation of service quality.22 To simplify, having a stock of human capital is similar to
having a team of talented players. Knowing how to leverage their talents is like having
skills in managing and coaching this team. So, too, without the right HR systems, the
employees are less effective.

BEHAVIOURAL THEORY
The behavioural perspective suggests that different strategies require not only different
human capital, but also different behaviours of employees.

An effective HR system first accurately identifies the behaviours needed to
implement a strategy. For example, what kinds of employee behaviours are needed
for Google to produce innovative ideas? This question may not sound difficult for
HR managers; providing expert opinion on human behaviour might be where the
HR profession adds the most unique value. Most HR managers have a clear under-
standing of whether the company needs risk taking or rule following, competition
or teamwork. HR’s role is to tactfully challenge and refocus baseless ideas of human
behaviour.23 How to design the HR system to ensure that employees have the skills
and opportunities to exhibit desired behaviours and are motivated to do so is more
complex and requires deep thinking and systematic analysis.24 In general, researchers
consider performance appraisal, pay for performance, incentive plans, advancement
opportunities, and benefits to enhance employee motivation to behave. Concomi-
tantly, practices such as employee involvement, participation in decision making,
voice and grievance, performance feedback, teamwork, and job enrichment provide
opportunities for employees to behave. Both practice bundles have shown significant
impact on organizational outcomes.25

Behavioural perspective suggests that these HR practices should be further linked
to a particular behavioural objective. For example, what kinds of HR practices will
produce innovative behaviours? Google encouraged innovative behaviours by selecting
people with high creativity, providing them with time and freedom to innovate, and
motivating them to innovate through various incentive programs. But this is only one
of many ways of encouraging creativity; each method may be specific to each organiza-
tion’s culture and traditions. We will discuss the alignment of HR system with business
strategy in more detail later in the chapter.

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NEL 35CHAPTER 2 Aligning HR with Strategy CHAPTER 2 Aligning HR with Strategy

The behavioural perspective is particularly important as the HR department is asked
to define and develop the behaviours necessary to achieve organizational capabilities
of innovation, speed, and accountability.26

STRATEGIC HR PLANNING
Despite the potential of HRM to make strategic contributions, HRM issues are often cited as
a threat to an organization’s ability to execute strategy. The free will, complex behaviours, and
human capital make effectively planning and managing human resources extremely difficult.

A more traditional perspective of the HR planning concept implied that the orga-
nization was concerned only with possible problems of labour surpluses and shortages.
The goal was to determine the knowledge, skills, and abilities (KSAs) required within
broad organizational outcomes such as growth or decline. Much emphasis was put on
the statistical techniques for analyzing resource supply and demand forecasting while
ignoring managerial realities and support for the process.27 This is now regarded as a
narrow, linear approach to HR planning.

There is some concern that the narrow approach of HR planning does not consider
the different HR practices required by fundamentally different strategies. For example,
a company that decides to grow through the introduction of innovative products needs
employees with different kinds of skills from a company that will grow through great
customer service. Under traditional HR planning models, both strategies would require
the acquisition and absorption of large numbers of employees, but the HR prescriptions
for selection, training, and performance management, for example, would differ radically.

In reality, HR departments may fall somewhere on the continuum of options
presented in Figure 2.1. Executives can expect that their HR departments will fall into
one of the options listed in the continuum.

In this book, we are suggesting both an approach of forecasting supply and demand
of human resources and an approach that calls for tailoring HR policies and practices
to the organizational needs of the future. The proliferation of bankruptcies, mergers,

AD HOC HEAD COUNT
PLANNING

WORKFORCE
FORECASTING
ANALYTICS

STRATEGIC
WORKFORCE
PLANNING

HUMAN CAPITAL
PLANNING

No workforce
planning/hire as
needed

Head count
analysis and
basic labour
costing

Historical or lag-
ging performance
indicators/
descriptive
workforce
analytics

Workforce
segmentation/
workforce plan-
ning to support
projected busi-
ness needs

Enterprise-
level workforce
planning/
workforce risk
management
and mitigation
planning

Source: Courtesy of The Conference Board of Canada, 2017, Workforce Planning Practices in Canada: Human
Resources Trends and Metrics, Fourth Edition, p. 17.

FIGURE 2.1

A WORKFORCE PLANNING CONTINUUM

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Strategic Human Resources Planning NEL36

and restructuring has affected our view of employees profoundly and highlighted the
need for the input of HR professionals in formulating policy.

THE IMPORTANCE OF STRATEGIC HR PLANNING
For the last eight years of surveys, The Conference Board of Canada reports that execu-
tives have identified HR planning as the most important long-term HR priority for
Canadian organizations.28 Executives are demanding that the HR department move
from articulating perceived value (“training builds employee skills”) to demonstrating
real value (the training results in fewer errors or more sales). As a member of the cor-
porate team, the focus of HR must be on scoring points, not just coaching, training, or
counting the number of players. The value of HR will be seen in its ability to deliver
the behaviours needed to enable the organization’s strategy. There are at least two rea-
sons strategic HR planning is so important: (1) employees help an organization achieve
success because they are strategic resources, and (2) the planning process itself results
in improved goal attainment.

The value of employees as a resource must be placed within a strategic framework.
In other words, a strategy itself can become obsolete, making current employee skills
obsolete. Suppose, for example, that the current workforce may be valuable because of
manual skills, but the market for the company’s manufactured products is declining.
Environmental analyses suggest that the corporation enter the high-tech field, with its
demand for flexible, knowledgeable workers. By changing the strategy, the “value” of
the current workforce is diminished. This requires HR planners to be forward looking;
when there is a vacancy, HR managers might not look for replacements for current skills,
but rather consider what skills will enable the organization to implement its strategy a
few years from now. A corollary is that employees can expect to face different HRM
practices throughout their lifetimes, and even within a single organization. Employees
might be asked to exhibit different behaviours, depending on strategic goals, and these
behaviours will be motivated by different HRM practices.29 HR planning ensures that
human assets are managed and matched to the organizational strategy. Readers are
invited to assess the HR planning efforts led by Billy Beane at the Oakland Athletics
in the end-of-chapter exercises.

IMPROVED GOAL ATTAINMENT
Strategic HRM can improve an organization’s performance. The goals of these HRM
strategies are to shape employee behaviour so that it is consistent with the direction the
organization identifies in its strategic plans. Organizations with clear strategies provide
direction and meaning to employees and mitigate the need for control by substituting
a consistency of purpose—in other words, a mission. This articulated vision for the
future may result in a more effective organization through increased motivation and
performance, lowered absenteeism and turnover, and heightened stability, satisfaction,
and involvement.30

Only one third of Canadian executives state that their strategies are supported
by a workforce plan.31 But what makes HR planning so difficult? Again, the survey
from The Conference Board of Canada provides some insights (see HR Planning
Notebook 2.1).

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NEL 37CHAPTER 2 Aligning HR with Strategy CHAPTER 2 Aligning HR with Strategy

To summarize, strategy formulation is important to the attainment of organiza-
tional goals in order to align all HR functional strategies with overall strategy and to
focus employees on important missions and goals of the organization. Research and
observations have demonstrated that developing HR practices that support the strategy
leads to improved strategy implementation. An apt cliché is “an organization that fails
to plan, plans to fail.”

// LINKING HR PROCESSES TO STRATEGY
Strategic HRM has to facilitate the formulation and implementation of corporate and
business-level strategies. Senior managers must focus on issues such as the HR implica-
tions of adopting a strategy. What are the internal and external constraints and oppor-
tunities? Exactly what policies, practices, and philosophies contribute to the successful
implementation of the strategy?

The basic premise is that every HR policy and practice must directly support the
organization’s strategy and objectives.32 This does not happen as frequently as it should.
Aligning HR strategy with business strategy can be done in one of these ways:

1. Start with organizational strategy and then create HR strategy.

2. Start with HR competencies and then craft corporate strategies based on
these competencies.

3. Do a combination of both in a form of reciprocal relationship.

Let us examine each approach.

HR PLANNING NOTEBOOK 2.1

PRACTICAL AND PERCEPTION BARRIERS TO WORKFORCE PLANNING

PRACTICAL BARRIERS PERCEPTION AND ATTITUDE BARRIERS

• Leaders lack planning and business acumen • Seen as important, but not urgent
• Multiple planning horizons • Resistance to change: “We always got by in the past”
• Organizational silos • Lack of a holistic approach
• Moving targets—business goals are not clear • It is hard to measure success
• Union restrictions, and barriers to internal employee mobility • Seen as too daunting to change
• No budget, or not enough budget • Considered to lack credibility
• No data available
• Not enough time, too busy, competing priorities, “daily

bombs,” and “fighting fires”

Source: Courtesy of The Conference Board of Canada, 2017, Workforce Planning Practices in Canada: Human Resources Trends and Metrics,
4th ed., p. 13.

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Strategic Human Resources Planning NEL38

CORPORATE STRATEGY LEADS TO HR STRATEGY
A traditional perspective of HR planning views HRM programs as flowing from
corporate strategy. In other words, personnel needs are based on corporate plans. If a
firm decides to compete on the basis of offering low-cost products, HR policies and
practices must align and be based on low labour costs. McDonald’s is a good example. To
illustrate the alignment of HR programs with business strategy, HR Planning Today 2.1
focuses on two strategies under Porter’s model: the low-cost-provider strategy and
the differentiation strategy. Although Porter recognized the importance of HRM, and
even concedes that, in some firms, HRM holds the key to competitive advantage,
he did not delineate any specific practices that can be aligned with business strategy.
HR Planning Today 2.1 provides one of the few “recipes” for using HR strategies to
support a business strategy.

HR PLANNING TODAY 2.1

HR ALIGNMENT WITH TWO STRATEGIES

Strategy 1: Low-Cost-Provider Strategy

A firm competing on cost leadership attempts to be the
low-cost provider of a product or service within a mar-
ketplace. The product or service must be perceived by
the consumer to be comparable to that offered by the
competition and to have a price advantage. McDonald’s
uses this approach, as does Timex.

Buyers are price sensitive, and businesses appeal to
this price consciousness by providing products or services
at prices lower than those of competitors. Survival is the
ultimate goal, but organizations price low to gain market
share (by underpricing competitors) or to earn a higher
profit margin by selling at the going market rate. This
strategy requires the company to balance the delivery
of a product that still appeals to customers with not
spending too much on gaining market share. McDonald’s
could deliver a cheaper hamburger, but would it have any
taste? McDonald’s could underprice its competitors, but it
may risk its survival by going too low. The key is to manage
costs every year.

The adoption of a low-cost-provider strategy by a
firm has immediate implications for HR strategy. Costs
are an important element of this strategy, so labour costs
are carefully controlled. Efficiency and controlling costs
are paramount. The implications of a low-cost-provider
strategy for six key components of HR are discussed

below, but first we start with the job description of a typical
employee working in a company that competes as a low-
cost provider.

The Employee

To keep wages low, jobs have to be of limited scope so that
the company can hire people with minimal skills at low
wages. The job requires highly repetitive and predictable
behaviours. There is little need for cooperative or inter-
dependent behaviours among employees. The company
directs its efforts at doing the same or more with less
and capitalizing on economies of scale. Doing more with
fewer employees is the goal of most organizations with a
low-cost-provider strategy.

Risk taking on the part of the employee is not needed,
but comfort with repetitive, unskilled work is necessary.
Customers like those frequenting McDonald’s are “trained”
not to make idiosyncratic requests (such as a “medium-
rare hamburger” or “hot mustard”), and so no unique
response system is required. Employees are not expected
to contribute ideas.

Another way to cut costs is to eliminate as many of
the support or managerial layers as possible. The impact
of cutting costs in this way is that employees may have to
do more with less, make more decisions, and so on, which
would require a more skilled employee. Alternatively, the

(continued )

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NEL 39CHAPTER 2 Aligning HR with Strategy CHAPTER 2 Aligning HR with Strategy

jobs could be so tightly designed that little supervision is
required, thus saving costs. Substituting technology for
labour is another way to save costs.

We now look at six HR functions that will facilitate
the personnel work at a low-cost-provider organization.

HR Planning

At the entry level, succession planning is minimal, ensuring
only the feeder line to the next level. Outside labour mar-
kets are monitored to ensure that entry-level people are
in adequate supply. The availability and use of fringe
workers—those who are retired, temporarily unemployed,
students, and so on—is part of the planning strategy,
particularly if the employment market is offering better
opportunities to the normal supply of low-skilled workers.

At the executive level, succession management
assumes the same importance as in other organizations.

Selection

Recruitment is primarily at the entry, or lowest, level and is
from the surrounding external labour market. Recruitment
is by word of mouth, and application forms are available
on-site, thus saving the costs of recruiting in newspapers.
Most other positions are staffed internally through promo-
tions. Thus, career paths are narrow.

Compensation

A low-cost-provider strategy includes lower wages and
fringe benefits. Beyond the legal minimum pay require-
ments, firms with this strategy carefully monitor what
their competitors are paying in the local labour market.
These firms’ strategy tends to be a lag strategy, where
they attempt to pay wages slightly below industry norms.

One way of achieving these lower costs is to out-
source production to sites with lower labour costs. In the
United States, this means moving production from high-
wage states, such as New York, to low-wage states, such
as New Mexico. In Canada, wages are very similar across
provinces, so firms analyze wage rates in countries such
as India, which pay employees substantially less for similar
productivity. Outsourcing has also meant moving the work
from highly unionized plants, where workers make $20
or more an hour, to nonunionized smaller sites, where
workers are paid slightly more than the minimum wage.

Cost reduction in wages can also be achieved through
the use of part-time workers, who receive no fringe ben-
efits. Canadian organizations pay around 30 percent in
fringe benefits, so the savings gained by using part-time
workers is substantial among large employers. Food
franchises employ part-time workers almost exclusively
to reduce labour costs.

Pay for performance, such as incentive compen-
sation that is linked to productivity, rewards individual
effort. Group rewards are based on explicit, results-
oriented criteria and the meeting of short-term perfor-
mance goals.

Programs designed to reduce labour costs, such as
outsourcing or using part-time workers, can easily be
imitated by competitors, and so may produce no long-
term competitive advantage. However, an innovative
compensation scheme that cannot be duplicated by rivals
may provide a competitive advantage. For example, in
an arrangement between the Great Atlantic and Pacific
Tea Company (A&P) and the United Food and Commercial
Workers (UFCW), workers took a 25 percent pay cut in
exchange for cash bonuses. If the store’s employees could
keep labour costs at 10 percent of sales by working more
efficiently or generating more store traffic, they would
receive a cash bonus of 1 percent of store sales. This
arrangement resulted in an 81 percent increase in oper-
ating profits. However, unions were opposed to the spread
of this practice, and so A&P’s rivals in the low-margin
food business were unable to reduce their labour costs
in the same way. Any incentives for performance would
reward cost savings, or improvements in efficiency, as
this example shows.

Training

Training is minimal, as few skills are required. Any training
is based on increasing efficiency in the current job, or
specialization for the current position. Such training is
fast and inexpensive. McDonald’s can train a new ham-
burger flipper or cashier within a few hours. There is little
to no investment in the long-term development of the
employee, nor in the acquisition of skills for jobs other
than the current one.

The training staff is lean, with the organization relying
on outside suppliers for its limited training needs. However,
most training takes place on the job in the form of direct
instruction from or coaching by the supervisor. The jobs

(continued )

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Strategic Human Resources Planning NEL40

are so narrow in scope, so repetitive in nature, that little
need for training exists.

Performance Evaluation

Short-term results, with explicit and standardized criteria,
are used to evaluate an employee’s performance. The
feedback is immediate and specific. Individuals are held
accountable only for their own behaviour or results, not for
that of the team or the company. Only the supervisor pro-
vides input for the performance evaluation. Forms are kept
to a minimum, and rating is done against check marks.
Feedback, if based on a performance review, tends to be
one-way, with little opportunity for the employee to debate
the results or receive developmental feedback. Results are
used for consideration for promotion.

Labour Relations

Low-cost providers try to prevent the formation of a union
because they believe that unions drive up wages. Unions find
low-cost providers, such as McDonald’s, difficult to unionize.
(Employees working part-time hours have little interest in
unionization because they believe that this is a part-time job
that they will leave in the near future, and they are unlikely
to benefit from belonging to a union, to which they have to
pay fees. It is also difficult to organize those working night
shifts.) Furthermore, employees quit often, and many low-
cost providers absorb turnover rates of 300 percent annually
as a cost of doing business. High turnover has the primary
advantage of keeping compensation levels low.

Now that we have an idea of how HR programs align
with a low-cost provider strategy, let us examine what these
programs would be like under a differentiation strategy.

Strategy 2: The Differentiation Strategy

In most markets, buyer preferences are too diverse to be
satisfied by one undifferentiated product. Firms providing
features that appeal to a particular market segment are
said to compete on a differentiation strategy. A firm com-
peting on the basis of a differentiation strategy will offer
something unique and valuable to its customers. BMW,
Polo Ralph Lauren, Rolex, and Hewlett-Packard’s scientific
instruments divisions are firms that compete successfully
by charging a price premium for uniqueness. The primary
focus is on the new and different. Observation, experience,
and market research will establish what buyers consider

important, what has value, and what buyers will pay for
these features. Then the firm can offer a product or service
that commands a premium price, increase unit sales within
this niche, and gain buyer loyalty among those who value
these features. The extra price outweighs the extra costs
of providing these features.

A firm can differentiate itself from its competitors in
many ways:

• Having quality products
• Offering superior customer service
• Having a more convenient location
• Using proprietary technology
• Offering valuable features
• Demonstrating unique styling
• Having a brand-name reputation

These different features can be anything. Common
examples show some firms competing on service (Four
Seasons Hotels), engineering design (BMW), image (Polo
Ralph Lauren), reliability (Bell), a full range of products
or services (Procter & Gamble), technological leadership
(RIM), and quality (Honda).

Most of the time, these competitive advantages are
combined, such as by linking quality products with propri-
etary technology and superior customer service, thus pro-
viding the buyer with more value for money. The key in this
strategy is to provide the differentiation that is perceived
to be of value to customers while keeping costs down. For
example, a slice of lemon in a glass of ice water delivered
to the table is an obvious way to differentiate the restaurant,
but at low cost. After-dinner mints are less expensive than
valet parking, but may be equally appreciated by diners.

A differentiation strategy calls for innovation and
creativity among employees. HRM is affected in funda-
mentally different ways in organizations that want to use
employees’ brains rather than their limited (mainly manual)
skills in the low-cost-provider strategy.

The starting point for aligning HR programming with
a differentiation strategy is the employee.

The Employee

Organizations competing on a differentiation strategy
require from their employees creative behaviour, a long-
term focus, interdependent activity, and some risk taking,

(continued )

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NEL 41CHAPTER 2 Aligning HR with Strategy CHAPTER 2 Aligning HR with Strategy

as well as an ability to work in an ambiguous and unpre-
dictable environment. Their employees’ skills need to be
broad, and employees must be highly involved with the firm.
Organizations encourage employees to make suggestions,
through both informal and formal suggestion systems, for
new and improved ways of doing their job. Employees at
Corning Canada Inc., for example, submit their suggestions
to their supervisors, who review them formally and give
feedback directly to the employee. Contrast this with the
traditional suggestion box, which many employees view
as a recycling bin because of the lack of timely feedback.

HR Planning

In a company that has a differentiation strategy and that
recognizes people are the key to competitive advantage, HR
planning is taken very seriously. For example, at Sumitomo
Metals in Japan, the business planning group reports to HR
because the company understands that identifying what
needs to be done is less difficult than planning how to do it.

Succession management is critical as employees
have to possess many attributes to move ahead in the
organization. Thus, a strong emphasis on developing skills
for the future is part of the promotion policy. Investments in
career moves, training, and developmental experiences are
substantial. Long-term job security and reciprocal loyalty
are the norm.

Selection

Companies with a differentiation strategy need employees
who have a broad range of skills and the ability to learn
from others. An innovative atmosphere requires employees
who are self-motivated and do not require a great deal
of supervision. Employees are selected for their abilities
to think creatively, to be flexible in work attitudes, and to
be able to work in teams. However, selection for these
characteristics is more difficult and usually involves team
interviews and behaviourally based evidence of innovative
performance. Employees are normally recruited through
reputation (word of mouth) or through graduate schools.
Some testing for creative ability may be used.

Compensation

Compensation plans affect employee behaviour more
directly than most HR practices. For example, Drucker
describes a compensation scheme he implemented at

General Electric (GE) in which pay for performance was
based only on the previous year’s results. As such, for ten
years, GE lost its capacity for innovation because investing
in innovation affects expenses and decreases profits, so
everyone postponed spending on innovation.

However, compensation is carefully designed in
firms that have a differentiation strategy. Pay rates may
be slightly below average market rates but there are sub-
stantial opportunities to increase those base levels through
incentive pay. Pay for performance is a large part of the
compensation package and will be dependent on indi-
vidual, group, and corporate results. These results are a
combination of process and financial criteria and are set
in advance, usually on a yearly basis.

There is a more varied mix of types of compensa-
tion; individuals may receive salary, bonus, or stock option
incentives. Internal equity is of greater concern than equity
with the external market. Egalitarian pay structures are
associated with greater product quality. Nonmonetary
rewards also play a larger role in HR strategy in these
types of firms. At Honda, the team that designs a unique
transportation vehicle is awarded a trip to Japan.

Training

Companies with a differentiation strategy have a strong
training team. The focus of training is on both skills
and attitudes. Process skills, such as decision making,
the ability to work in teams, and creative thinking, are
emphasized as much as skills needed for the current job.
The training itself is seen as an opportunity to generate
new ideas and procedures. Indeed, customers and cross-
functional teams might be included in the training program.
Developmental experiences are encouraged. The value of
working in another division or another country is recog-
nized and encouraged. Employees receive promotions or
other job opportunities based, partially, on their willingness
to undertake training and their track record in learning.

Performance Evaluation

In companies with a differentiation strategy, performance
appraisal is based not on short-term results but instead
on the long-term implications of behaviour. Processes
that are deemed to lead to better results in the long term
are rewarded. Thus, companies encourage and appraise
attitudes such as empowerment, diversity sensitivity,

(continued )

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Strategic Human Resources Planning NEL42

and teamwork in an effort to build future bottom-line
outcomes. Working beyond the job is encouraged, not
punished. Failure is tolerated, although management tries
to distinguish between bad luck and bad judgment or
stupidity.

Evaluation tends to be based on a mixture of indi-
vidual and group (and sometimes corporate) criteria. Thus,
an individual might be evaluated on his or her ability to
achieve results and to work as a member of the team, the
group’s performance might be measured against estab-
lished quotas, and the company might be measured in
terms of its overall financial performance.

Appraisals that include input from employees, func-
tional experts, peers, and so on—360° evaluations—are

the norm. Organizations in the service sector are more
likely to include customers as sources of input for per-
formance appraisal.

Labour Relations

Any structure or process that reduces the capacity to be
innovative and flexible is difficult to tolerate. Traditional
unions, with rigid collective agreements, are encouraged
to work collectively toward a new union–management
relationship. This relationship is characterized by shared
information such as open books, shared decision making
about best approaches, and shared responsibility for
solving problems as they arise.

Sources: Adapted from R.S. Schuler and S.E. Jackson, “Linking Competitive Strategies with Human Resource Management Practices,” Academy of
Management Executive, Vol. 1, No. 3 (1987), pp. 207–219; D. Ulrich, “Using Human Resources for Competitive Advantage,” in R.H. Kilman and
I. Kilman, eds., Making Organizations Competitive, San Francisco: Jossey Bass, 1991; P.F. Drucker, “They’re Not Employees, They’re People,”
The Harvard Business Review, Vol. 80, No. 2 (2002), pp. 70–77; and M. Belcourt and S. Thornhill, “Growing from the Inside Out: Human Resources
Practices for Growth Strategies,” Proceedings of the Administrative Sciences Association of Canada, 1999.

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Luxury retail stores are an example of a differentiation strategy.

But another perspective reverses this view, suggesting that employee competencies
determine the business strategy.

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NEL 43CHAPTER 2 Aligning HR with Strategy CHAPTER 2 Aligning HR with Strategy

HR COMPETENCIES LEAD TO BUSINESS STRATEGY
A competing view states that an organization cannot implement a strategy if it does
not have the human resources necessary. Currently, companies are scrambling to find
qualified workers in many fields, as discussed in Chapter 6 on labour supply.

Small businesses seem to be better at this second approach. The owners of very small
businesses are nimble and quickly recognize that if an employee has a certain capability,
it can be exploited to develop new products or services. Diversity management efforts are
currently building on this theme. For example, if the number of employees who speak
Mandarin reaches a sufficient number within an organization, the observant executive
will start to explore Asian markets.

This “skills determine strategy” outlook relies too heavily on employee capabilities
and not enough on environmental analysis; nor is consideration given to changing HR
practices in training or compensation to facilitate this change in strategy.

These perspectives represent two extremes on a continuum between organiza-
tional strategy and HR practices. The reality is closer to the concept of reciprocal
interdependencies.33

RECIPROCAL INTERDEPENDENCY BETWEEN HR STRATEGY
AND BUSINESS STRATEGY
An emerging perspective sees HR strategy as contributing to business-level strategy and
vice versa. Increasingly, in large firms, senior HR vice-presidents are asked not only to
review business plans to ensure consistency with HR strategy but also to provide input
to this strategy based on HR strengths and weaknesses.

In this context, an organization chooses a business strategy, such as being a leader
in innovative products, based on its in-house, highly educated, trained employees who
have been socialized to value creativity. Simply phrased, an organization develops its
employees and then capitalizes on their skills; the employees then learn new skills, and
so it continues. In many ways, HR strategy generates the business strategy, and business
strategy determines HR strategy. This concept of reciprocal interdependence is widely
accepted in the HR strategy literature.34

An emerging view is that HR should build its strategies by starting with the issues
facing the business. All HR programs should be created to solve real business problems
and add value, thus becoming indistinguishable from the business.35

HR BECOMES A BUSINESS PARTNER
The key point here is the concept of concurrent strategy formulation. Strategy develop-
ment is conducted at the same time that HRM issues are considered. The HR senior
management team moves from outsider status to insider status. The implications are
not trivial; HR managers must understand the numbers language of business or the
outcome expectations of nonprofit organizations. They must be able to understand
analyses presented by marketing, financial, and operational managers. Cost–benefit
assessments of options within the HR domain will have to be prepared and defended.
Entrepreneurial instincts will have to be sharpened, as HR managers will be expected to
engage in scanning HR capabilities for business opportunities in this two-way approach

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Strategic Human Resources Planning NEL44

to strategic HR planning. An example of this occurred when an organization was
experiencing a rapid downward spiral in business. The traditional HR response would
have been to prepare for downsizing the workforce. Instead the HR manager created a
unit to lobby—successfully—the government to support two major contracts, using their
employees’ unique competencies.36

Alternative solutions to problems have to be generated. For example, if the low-cost
strategy depends on hiring personnel at minimum wage, HR managers have to develop
strategies to deal with rapid training and high turnover rates. This option will have to
be compared with outsourcing, use of robots, or even increasing wages to reduce the
costs of turnover. The HR manager is no longer the auditor, but a partner and problem
solver. Linkages between the HR manager and other managers, both formal and informal,
ensure that this partnership role is enacted.

// STRATEGIC PARTNERING
Human resources professionals recognize the need to play a more strategic role within the
organization. Although about 55 percent of HR managers are playing that role now, execu-
tive teams expect most of them to be more strategic and to demonstrate added value over
the next five years.37 Why do executives ignore HR’s contribution to strategy? Some argue
that it is because management is not satisfied with HR services in general; that “people”
issues belong only to HR, and HR can take care of any problems in executing the strategy.
Surveys have found that CEOs want HR to be business people first, then HR leaders. CEOs
wish that HR executives would be less concerned with narrow HR policies and processes
and focus on answering the question, “Do we have the organization design and people
to achieve our plan?”38 Boards of directors are demanding that HR departments provide
them with information outlining the links between strategy and workforce implications.39

These attitudes are changing, as organizations realize the impact that HRM strategy
can have on organizational effectiveness and as HR managers develop the internal
relationships to ensure that the strategy is effective. However, you cannot just ask to be
on the executive team; you have to prove yourself. HR Planning Notebook 2.2 poses
the question, “Are you a strategic partner?”

HR PLANNING NOTEBOOK 2.2

ARE YOU A STRATEGIC PARTNER?

Do you understand the business? What financial indicators
are important to the company? Who are your customers,
and what is your competitive advantage? What major tech-
nological changes will affect your work?

Do you know what the corporate plan is? Can you
quickly list the major initiatives of your organization?

Do you align HR programs, policies, and practices with
organizational strategies and goals? How can HR position
the organization to succeed? Are the people management
processes focused and measured on deliverables and not

functions? Does HR report on effectiveness (the impact
that the training program had on employee behaviour)
or just efficiencies (such as the number of people being
trained)?

Are major organizational decisions made with your
input? Are you on the executive team? Are you part of the
strategic planning process?

Count the number of times you answered yes. The
higher the number, the greater the likelihood that you are
a strategic partner or have the ability to be one.

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NEL 45CHAPTER 2 Aligning HR with Strategy CHAPTER 2 Aligning HR with Strategy

// BECOMING MORE STRATEGIC
HR departments are restructuring in order to be able to do the basics right (payroll, safety
training, and so on) while enhancing the performance of business units and supporting
strategic moves. Traditionally, HR has been organized into functional units (training, com-
pensation, and so on). However, there are some more innovative practices, where the unit
is organized according to the services provided, as outlined in HR Planning Notebook 2.3.

HR PLANNING NOTEBOOK 2.3

A STRATEGIC VISION OF HR

Corporate HR

The key officer functions as a practice director, similar to
what is found in consulting companies, and is on the exec-
utive team. Studies in the United Kingdom and Australia
show that companies that included the HR director on the
executive team experienced twice the growth in earnings
per share compared to those who did not.40

Services Inc.

The part of HR that is administrative, estimated to be
60 percent to 70 percent of HR work, is located in a sepa-
rate unit called Services Inc. The administrative burden
is reduced through call centres and use of the Internet
and intranet. The type of HR work done in Services Inc.
includes compensation and benefits administration, training
and education administration, staffing administration, and
records management. There are three levels of service: Tier
one is accessed by computer or telephone, and deals with
minor things such as changes in addresses; everything is
processed without human intervention. Tier two directs
HR requests for information not listed on Tier-one sites—
such as questions about retirement eligibility or finding a
course on innovation—to a call centre that can provide a
quick response or explanation. Tier three comprises case
workers—highly skilled professionals—who provide exten-
sive and comprehensive assistance to complex issues such
as employee terminations or employee assistance.

Services Inc. is driven by cost reduction—it has to
be the lowest cost and most efficient provider of ser-
vice, whether outsourced or provided in-house. It may be
located in Information Services or wherever appropriate

as part of an organization-wide effort to provide services
through the centralization of technology and call centres.

Solutions Inc.

This branch of corporate HR consists of HR subject-matter
experts—all of whom possess professional credentials
acquired through advanced study and extensive experi-
ence. Their role is to transform the organization through
training and development, labour relations, compensation
design, strategic staffing, and organizational development.
They are responsible for creating solutions to organiza-
tional problems and for preparing the organization to
achieve its strategic intents. These experts act like con-
sultants to the organization and operate on a for-profit
basis—that is, their efforts are measurable and must result
in an increase in performance measures. The consultants
are on the cutting edge of research and put innovative,
state-of-the-art theories into practice.

Organization Capability Consultants

Operating as the third branch of corporate HR, the HR
professionals in this unit are dispersed throughout the orga-
nization, providing guidance and assistance to operating
units, with the goal of improving the effectiveness of the
organization. If asked questions about changing benefits
or dealing with a potential unionization threat, they provide
the link to the contact numbers for Services Inc. or Solu-
tions Inc. They build organizational capabilities by aligning
HR strategies, processes, and practices with the needs of
the business. Their HR solutions should change existing
processes to create “better-faster-cheaper” approaches.

Source: From MELLO, Strategic Human Resource Management, 1E. © 2002 South-Western, a part of Cengage Learning, Inc. Reproduced by
permission. www.cengage.com/permissions.

02_ch02.indd 45 7/31/18 8:31 PM

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Strategic Human Resources Planning NEL46

It seems feasible to design HR policies to match strategy, but what happens when
an organization has more than one business strategy and more than one HR strategy?
We attempt to answer that question in the next section.

// HR STRATEGY DIFFERENTIATION
Firms with more than one business strategy are likely to have more than one approach
to HR strategy. As different divisions are responsible for realizing different aspects of
the strategy, employees in different divisions may be encouraged to display different
behaviours through appropriate HR practices. The challenge is to treat employees across
divisions in an equitable fashion while motivating different behaviours that align with
the divisions’ strategies or functions. For example, 3M adopted HR practices that support
innovation in the research and development branch while adopting policies that support
low costs in the manufacturing branch. But to achieve equity, the company cultivated a
culture of trust by implementing a series of HR practices such as educating employees
on company’s mission and objectives, ensuring compensation fairness, and facilitating
communication to enhance employee engagement and perception of fairness.41

Recently researchers have suggested that HR strategy can be further differentiated
based on jobs/positions within divisions. From a strategic perspective, different positions
assume different roles in strategy implementation. Two considerations are (1) when a
position is directly responsible for creating the strategic capabilities of the business; and
(2) when different job holders may vary substantially in their job performance, then the
position is considered a strategic position.42 For example, at Big Pharma, the strategic
capability of the business is new product development, thus the R&D scientists would
assume the most strategic role. Walmart’s strategic capability is its distribution and logis-
tics systems that allow it to achieve high efficiency at low costs, thus the distribution
and logistics specialists should be considered strategic positions. Organizations should
have a special HR strategy for these strategic positions to ensure that they can attract,
motivate, and retain top players in these positions.43

From a human capital perspective, even within the same positions, some individuals
may deserve differential HR strategy than others for two reasons—because their human
capital is (1) valuable to the business strategy and (2) unique (hard to replace).44 For
example, R&D scientists who have desirable skills in new product development in a
particular domain, or founding members who have extensive experience within the
company, may deserve differential HR management.

HR Planning Today 2.2 illustrates how Canadian companies are differentiating
talent.

Human capital was found to be significantly related to organizational performance,
particularly when the human capital was unique to the organization.45 The basic pre-
scription is to design HR programs that support the business strategy.

CHARACTERISTICS OF AN EFFECTIVE HRM STRATEGY
The purpose of HR strategy is to capitalize on the distinctive competencies of the
organization and add value through the effective use of human resources.46 Effective
HRM strategies include external and internal fit, and a focus on results.

Fit is an important consideration when designing HR programs. We look at two
important types of fit: external fit and internal fit.

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NEL 47CHAPTER 2 Aligning HR with Strategy CHAPTER 2 Aligning HR with Strategy

EXTERNAL FIT

HR programs must align with or fit the overall strategy of the organization. If the
business strategy is to differentiate from competitors based on superior service, then
selection and training programs should be developed to hire and train people in the
skills and behaviours necessary to deliver superior service. Fit with other functional

HR PLANNING TODAY 2.2

HOW CANADIAN COMPANIES DIFFERENTIATE

The Conference Board of Canada found that employers
are segmenting workers by these categories.

• Hot skills: skills that are in short supply and high
demand in the labour market

• Mission critical skills: capabilities needed within
an occupation (leadership skills)

• Mission critical roles: these are highly skilled,
highly trained individuals who drive organizational
value

• Key job family positions: these workers are well
trained on core organizational processes, but are
more easily replaced

• Contingent labour: temporary, demand-based and
project-based workers

Source: The Conference Board of Canada, 2017, HR Talent Management Benchmarking, 4th edition, p. 65.

These workers are trained to provide excellent customer service in support of a marketing promise of 24-hour
support.

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Strategic Human Resources Planning NEL48

strategies is as important as fit with business strategies. HR senior management must
be included in strategy discussions to be sure this happens. This is sometimes called
the “best fit” approach to strategic HR, where HR strategies match organizational
strategies.

INTERNAL FIT

We look at two types of internal fit: a fit with other functional areas, such as marketing,
and a fit among all HR programs. Fit with other functional areas is important. If the
marketing department is developing an advertising plan that promises access to 24-hour
customer service representatives but the HR plan does not include compensation dif-
ferentials for shift work, the overall marketing strategy might fail.

HR programs must also be consistent with each other. That is, training, selection, and
appraisal must work together to support a strategy. If the customer service representatives
use technology, then the staffing department must hire people either who are computer
literate or who have the kinds of intelligence that enable them to learn computer skills
rapidly. This working together is commonly referred to as “bundling” HR practices. The
“best practices” approach, in which bundles of HR practices are internally consistent,
suggests that there is a direct relationship between an internally consistent bundle of
HR practices and firm performance.47 If an organization adopts one best practice, such
as structured interviewing, without adopting bundles of best practices that align with it,
it will not increase the impact in a synergistic manner. However, there is disagreement
as to what, exactly, these best practices are.48

FOCUS ON RESULTS
The hard work of deciding on strategy is not its formulation but its implementation
and the tracking of results. Many HR managers do not have the resources or skills to
measure results to see if the goals have been achieved. Unless the strategy contains
performance measures—that is, is results oriented—it will be difficult to know how
successfully the strategy was implemented. Chapter 14 presents various methods for
evaluating programs.

Many HR programs are described as solutions looking for problems. Although HR
managers insert the word “strategic” in front of HR programs, they fail to demonstrate
the link to results. Before any HR program is introduced, the following chain needs to
be developed.

!
! !
HR program employee human capital and behaviours

organizational strategy organizational outcome

So, if the overall corporate outcome for a retailer is “growth in sales,” and the
strategy to do this is through customer service (a differentiation strategy), then what
employee human capital and behaviours are required? If, for example, product
knowledge and sales skills are needed, then HR programs could be designed to select
and/or develop these skills.

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49CHAPTER 2 Aligning HR with Strategy NEL

// SUMMARY
Strategic HRM is a set of distinct but interrelated philosophies, policies, and prac-
tices with the goal of enabling the organization to achieve its strategy. HR strategy is
embedded in theories of the resource-based view of the firm, the behavioural perspective,
and the human capital approach. By involving HR in discussions of strategic policies,
an organization has a better chance of being effective in the implementation of these
policies. There are various approaches to linking HRM strategies to organizational
strategies. We can start with the corporate strategy that leads to the HR strategy, or
start with the HR competencies that lead to the business strategy, or use a blend of the
interrelationship of the HR strategy and the corporate strategy. Aligning HR strategy
with the corporate strategy and with other functional strategies is important.

KEY TERMS
human capital p. 33
strategic HRM p. 30

DISCUSSION QUESTIONS
1. “Employees are our biggest asset.” “Yes, but they can walk out the door any time

and all your investment in them will be lost.” Explain why investments in human
capital are important. Using the example of a great coach, explain why all is not
lost if some of the team members quit.

2. You and your friend decide to open a high-end restaurant specializing in cuisine from
your home country. This type of food may appeal to people in the neighbourhood,
but you will need to differentiate this restaurant from others, and offer great service,
with explanations, customization etc. Describe the ways in which you would use
HRM programs to train the waiters.

3. HR Planning Notebook 2.1 outlines some barriers to HR planning. In a group, can
you think of ways to overcome or bypass these barriers?

EXERCISES
This chapter outlined how organizations must align HR programs (and therefore
employee behaviours) with corporate strategy, using predominantly businesses as
examples. But here are two mini-cases about how sports (tennis and baseball) can use
the same principles of HR planning to achieve goals.

1. Canada had never had a tennis player in the top 10 rankings of the best
players in the world. And yet, in 2014 Milos Raonic was ranked 6, Eugenie
Bouchard was ranked 7, and Vasek Pospisil won doubles at Wimbledon.
Was this just a lucky streak of talented players emerging? Not at all. It was a
plan, started 10 years ago. First, Tennis Canada built two excellent tourna-
ment facilities: The Rexall Centre in Toronto and the Uniprix Stadium in

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50 NELStrategic Human Resources Planning

Montreal, generating more revenue and more sponsorships. Money avail-
able for player (talent) development soared from $4 million to $12 million.
But other countries had even more money to spend on player development.
So the next steps were critical to the success. Tennis Canada established a
national training centre in Montreal, recruited a coach who had coached
top players in Europe, and selected only 10–12 adolescents who had demon-
strated exceptional skills and motivation, who go to school in the morning,
and then spend 5 hours training in the afternoon. They are supported exten-
sively, with coaching sessions in Europe, and travel to tournaments around
the world. And this new plan worked! Check out the new talent emerging
from this pipeline and making headlines in Canada. http://www
.tenniscanada.com. What are the important behaviours for sports players in
individual (not team) sports? What (HR) programs can be used to generate
these behaviours?

2. Traditionally, Major League Baseball scouts chose players for their future
potential, and selection decisions were made on gut instinct. Bill James
studied baseball statistics for three decades and developed a method called
Sabermetrics (based on rigorous statistical analysis) to determine a player’s
true value to the team. Sabermetrics is a process that analyzes past perfor-
mance statistics (such as batting averages, earned run averages, bunting,
stealing, getting on base etc.) and links these to winning scores. These find-
ings were not accepted until Billy Beane of the Oakland Athletics put Saber-
metrics into practice. Watch the biographical sports movie Moneyball (2011)
and learn about this approach. Identify the key competencies/capabilities of
players that Billy Beane sought. Did they support the competing strategy of
the Oakland Athletics?

CASE STUDY LINKING HR PRACTICES TO PERFORMANCE

Five Star, a luxury hotel in Auckland, New Zealand, was established in the early
1980s, renovated in the mid-1990s, and basically had not changed since. Competi-
tion was increasing as three more luxury hotels had opened in the area. The owners
reacted by trying to upgrade the hotel and improve the customer service. In the
hotel sector, customer service is the only differentiator from other hotels.

The owners created a vision statement that included a strategy for achieving
their vision:

Five Star is to be recognized as the finest five-star property in Auckland
and a business leader in the hospitality industry. We will achieve this
vision by recruiting and developing customer-focused employees who
provide the highest level of guest service and by providing the highest
amenity level of any hotel in Auckland.

By improving customer service, the owners hope to increase customer satisfac-
tion and impact financial performance—the value chain, as demonstrated below:

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51CHAPTER 2 Aligning HR with Strategy NEL

Other Factors
Physical
property

Amenities

Key HRM Policies
and Practices

Training
Selection
Orientation
Performance
appraisal
Incentive
compensation

Skills
Knowledge
Attitudes

Employee
Commitment

Employee
satisfaction
index (ESI)

Employee
Competencies

Trained
staff %

Customer
Satisfaction

Overall guest
satisfaction
(OGS)
Return
guest %

Financial
Performance

Revenue per
available
room
(RevPAR)
Gross
operating
profit (GOP)

FIGURE 2.2

MANAGEMENT POLICIES AND PRACTICES IN A QUALITY-FOCUSED HOSPITALITY
INDUSTRY STRATEGY

Source: P. Haynes and G. Fryer 2000 “Human Resources, Service Quality and Performance: A Case Study,”
International Journal of Contemporary Hospitality Management, Vol. 12, No. 4, pp. 240–248.
© Emerald Group Publishing Limited. All rights reserved.

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44. Becker, Huselid, and Beatty, 2009; Huselid, Beatty, and Becker, 2005.
45. Lepak, D.P., and S.A. Snell. 1999. “The Human Resource Architecture:

Toward a Theory of Human Capital Allocation and Development.” Academy
of Management Review, Vol. 24: 31–48.

46. Crook, T.R., J.G. Combs, S.Y. Todd, D.J. Woehr, and D.J. Ketchen Jr. 2011.
“Does Human Capital Matter? A Meta-analysis of the Relationship Between
Human Capital and Firm Performance.” Journal of Applied Psychology, Vol. 96:
443–456.

47. Cooke, R., and M. Armstrong. 1990. “The Search for Strategic HR.” Personnel
Management (December): 30–33.

48. Buyens, D., and A.D. Vos. 2001. “Perception of the Value of HR.” Human
Resource Management Journal, Vol. 11, No. 3: 70–90.

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NEL

CHAPTER

3

CHAPTER LEARNING OUTCOMES
AFTER READING THIS CHAPTER, YOU SHOULD BE ABLE TO:

• Identify the sources that HR planners use to keep current with business
and HR trends.

• Understand how environmental scanning is practised.
• Discuss the challenges in scanning the environment.
• Explain the environmental factors, such as the economic climate, the political

and regulatory context, and the social and cultural climate, that influence the
practice of HRM.

• Describe the role of the stakeholder, and list several examples.

ENVIRONMENTAL
INFLUENCES ON HRM

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Strategic Human Resources Planning NEL56

// INTRODUCTION
To understand strategic HR planning, we must understand how HRM is affected by the
environment in which it operates. Just consider the past decade. Was your life touched by
any of these events: the 2017 harassment scandals; the 2014 rise of terrorism; the 2013

General Motors (GM) was, for some business experts,
associated with the birth of American capitalism. Back in
1955, the chairman of GM conceitedly stated that “What is
good for General Motors is good for America.” But in 2009
GM filed for bankruptcy and then was revitalized through
$50!billion in government bailout funds.1 How is it possible
that a corporation with money and expertise ended up with
just 21 percent market share in 2008, from a position of
50!percent market share 50 years earlier?

Some experts feel that the failure was the myopic
views held by management. GM’s managers refused
to adjust to a changing world for more than 30 years.
GM managers thought that they understood that North
American motorists loved big cars. They did not see or
did not realize that the rising costs of fuel and increasing
environmental awareness of consumers would demolish
their core business of gas-guzzling SUVs. Ironically, GM
was among the first to introduce the electric car, EV1, in
1996 but abandoned it in 2002 due to its high cost.

GM studied the competition, but in the wrong way.
It appreciated the fact that the Japanese had cost and
quality advantages, but did not seem to understand how to
adapt these techniques to their own plants. To understand
the cost advantages, GM purchased Japanese cars and
disassembled them, looking for clues that explained their
efficiencies. But while GM was studying these cars, the
Japanese were already at the drawing board designing the
next generation of cars. To rationalize the Japanese quality
advantages, GM blamed the workforce and suppliers for
quality and tried to “inspect quality” into the final product.
They believed that the Japanese were able to produce
superior products because their workers were docile and
worked 10 hours a day.

GM did not seem to understand how factors can
interact. Take, for instance, the interaction between the
volume of cars sold and the price of fuel. In 1995, Jack
Smith, CEO of GM, told investors to see the potential of the

global market, because the North American market was
saturated. He forecasted that GM would sell 10 million cars
in China alone. When asked by an analyst, “Do you think
that there will be an impact on fuel prices, if millions and
millions of cars are purchased in developing countries?”
the reply was, “We think that gas supplies will be adequate
and gas prices will rise just at the rate of inflation.”

In a reactive way, GM cut fixed operating costs by
22!percent and offloaded its extremely costly health ben-
efits for retirees. (GM management had not foreseen the
huge costs of these agreements to care for aging retirees,
who were more numerous than employees, which added
about $1400 to the cost of every vehicle.) But it was too
late for GM. Toyota overtook GM as the world’s largest car
maker in 2008. When the demand for cars plummeted due
to the economic crisis coupled with rising fuel prices, GM
could not sustain its cash flow and filed for Chapter 11
reorganization in the United States in 2009. After receiving
government bailout, GM was profitable again. Currently,
GM is on the rise again, due to increased sales in China,
growth in American sales due to hurricane damages, and
the potential profits that analysts are seeing in its new
electric vehicle and ride-sharing programs.

The auto sector today is transforming rapidly. There
are changes in how transportation is viewed in response to
erratic fuel prices, energy risks, vehicle safety, and climate
change, and consumers are making adjustments through
carpooling, biking, and public transportation. Entrepre-
neurial ideas may emerge from those outside the auto
industry: those who are scanning the environment, reading
the trends, and responding innovatively.

Source: Adapted from a July 13, 2008, broadcast of The Michael
Enright Show. CBC Radio, available as a podcast; Taylor, Alex, III.

“Gentlemen, Start Your Engines.” Fortune, January 21, 2008: 70; and
E. Gourdes, October 16, 2017, “Cramer Explains Why GM Stock Is

Suddenly in Style on Wall Street.” https://uk.finance.yahoo.com/
news/cramer-explains-why-general-motors-223600791.html.

Retrieved October 17, 2017.

ENVIRONMENTAL SCANNING AT GM

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NEL 57CHAPTER 3 Environmental Influences on HRM

floods in Alberta; or the 2008–2009 economic meltdown?
HR planners want to track trends that influence the way in
which employees can be managed. As a result of 9/11 and
SARS, most large organizations now have emergency plans
in place for the safety of their employees and buildings.

HR strategists need information about their environ-
ment in order to exploit the opportunities or cope with
the threats. Environmental factors may influence different
industries and businesses in a different way and to a dif-
ferent extent. The opening vignette shows that gas price
and environmental concerns of customers influenced the
strategic planning at GM; similarly, customers’ attitudes
toward nutrition and health may influence the business
strategy of restaurants and food retailing chains. Being
responsive to environmental changes is a prerequisite for
building dynamic capabilities and gaining a first-mover
advantage. It is important to note that following environ-
mental changes is not only general managers’ responsibility, but also the responsibility
of HR managers. Fear over pandemics, costs of fuels, technology development, and the
demographics of the workforce all directly influence how work should be designed and
how HR should be managed.2 Being aware of knowledge workers’ increasing preference
for work–life balance and challenges, Google was among the first to create work–life
balance programs as well as flexible job design to attract and motivate top talent. This
created a competitive advantage in the company’s human resources competency and
engagement, which enabled the company to continuously grow and outperform others.

We will look first at the sources and methods HR planners use to track these trends.

// ENVIRONMENTAL SCANNING SOURCES
AND!METHODS
Managers have to develop strategies and keep a keen eye on what is happening in the
world outside the organization. Environmental scanning is the systematic monitoring
of the major factors influencing the organization to identify trends that might affect the
formulation and implementation of both organizational and HR strategies.

Environment is a fuzzy term; it covers factors as broad as national and multinational
contexts that influence an organization. For example, managers are influenced by the cul-
ture in which they operate. A manager in Vancouver will treat her employees differently
than a manager in New Delhi, and the employees in each city would have expectations
about how managers should supervise. Environment also includes industrial environ-
ment, such as Porter’s Five Competitive Forces.3 HR practitioners who understand the
competitive environment and its implications for their organizations can then develop
practices that create competitive advantage.4

The analysis of the external environment consists of these stages:

• Scanning: An attempt to identify early signals of changes and trends in the
environment. This information is ambiguous, incomplete, and unconnected.

• Monitoring: A systematic approach to following some key indicators that may
affect the organization, such as legislative changes.

Environmental
scanning
Systematic monitoring
of trends affecting the
organization

Environmental factors, such as the Calgary flood impact
organizational plans.

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Strategic Human Resources Planning NEL58

• Forecasting: After monitoring a trend, an attempt to project the possible impact
on the organization.

• Assessing: An attempt to describe the impact of the monitored trend on the
organization, and make a judgment of the probability of each of several
possible outcomes.5 For example, what would be the impact of a trend in
self-driving automobiles?

In the past, HR managers monitored changes that might affect their programs and
policies by reading newspapers or trade publications. They kept informed of issues
regarding employment laws by subscribing to particular news services, and by being a
member of the provincial HR association. The next section describes the sources that
HR professionals might use to monitor trends in the environment.

SOURCES OF INFORMATION
When developing strategies and determining their likely impact on an organization, HR
professionals rely on many sources of information. These include publications, profes-
sional associations, conferences and seminars, and professional consultants.

PUBLICATIONS

HR professionals actively scan Canadian newspapers, business publications, and HR
magazines, journals, and newsletters. We are fortunate enough to have access to not
only a wide range of Canadian sources of information but also the extensive publica-
tion network originating in the United States. The authors’ experience suggests that
Canadian HR trends lag behind U.S. trends by a year or two. For example, workplace
harassment and employee engagement were hot issues in the United States three years
before they became important in Canada. Thus, reading U.S. publications acts as an
early warning signal for Canadian HR professionals. HR practitioners monitor many
of the publications and websites listed in HR Planning Notebook 3.1.

PROFESSIONAL ASSOCIATIONS

Canadian HR professionals and executives belong to a number of organizations that
publish newsletters and updates on current events. Many of these, such as the Human
Resources Professionals Association, have committees that actively scan the regulatory
scene for upcoming changes. Some, like The Conference Board of Canada, conduct
research with their members to track trends. Relevant associations are listed in HR
Planning Notebook 3.2.

CONFERENCES AND SEMINARS

Most professionals keep current with and even ahead of emerging trends by attending
conferences, seminars, and workshops in Canada and the United States. The Human
Resource Professionals Association, for example, attracts over 3000 participants to its
conference each year. Such events, including those sponsored by private organizations,
are widely publicized in HR publications.

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NEL 59CHAPTER 3 Environmental Influences on HRM

HR PLANNING NOTEBOOK 3.1

PUBLICATIONS OF INTEREST TO HR PROFESSIONALS

Canadian

Canadian Business (http://www.canadianbusiness
.com)

Canadian HR Reporter (http://www.hrreporter.com)

Canadian Journal of Learning and Technology
(http://www.cjlt.ca)

The Financial Post (http://business.financialpost
.com/category/executive/careers)

The Globe and Mail Report on Business (http://
www.theglobeandmail.com/report-on-business)

HR Professional Now (http://hrprofessionalnow.ca)

Ivey Business Journal (http://www.iveybusinessjournal
.com)

Profit (http://www.profitguide.com)

Workplace Today (https://www.workplace.ca/
magazine)

U.S. and International

Bloomberg Businessweek (http://www.businessweek
.com)

Fortune (http://www.fortune.com)

HR Focus (http://www.hrfocusmagazine.com)

HR Magazine (https://www.shrm.org/hr-today/
news/hr-magazine)

People Management (https://www.peoplemanagement
.co.uk)

The Economist (http://www.economist.com)

Training (http://www.trainingmag.com)

Research Journals—available through Institutional
Libraries

Academy of Management Perspectives

Academy of Management Review

Benefits Canada

Business Horizons

Business Quarterly

California Management Review

Canadian Journal of Administrative Studies

Canadian Labour Law Reporter

Compensation

Compensation & Benefits Review

European Management Journal

Harvard Business Review

Human Resource Management

Journal of Applied Psychology

Journal of Business Ethics

Journal of Labor Research

Journal of Management

Journal of Staffing and Recruitment

Labor Studies Journal

Management Review

Occupational Outlook Quarterly

Organizational Behavior and Human Performance

Personnel

Personnel Journal

Personnel Psychology

Public Personnel Management

Training and Development Journal

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Strategic Human Resources Planning NEL60

PROFESSIONAL CONSULTANTS

Organizations that have an active interest in understanding the influence of potential
trends often hire consultants to research or interpret these trends for them. The Hudson
Institute is an example of a firm that specializes in this form of consulting. Most

HR PLANNING NOTEBOOK 3.2

ASSOCIATIONS OF INTEREST TO HR PROFESSIONALS

Administrative Sciences Association of Canada
(HR Division)
Canadian Association of Management Consultants
Canadian Council of Human Resource Associations
(links to all provincial HR associations)
Canadian Human Resource Planners
Canadian Industrial Relations Association
Canadian Payroll Association
Canadian Public Personnel Managers Association
Canadian Society for Training and Development

Conference Board of Canada
Human Resource Planning Society
International Association for Human Resources
Information Management Association
North American Human Resources Management
Association
Society for Human Resources Management
Society for Industrial and Organizational
Psychology
World at Work

HR PLANNING TODAY 3.1

THE EXPERTS PREDICT THE FUTURE OF HRM

The Centre for Effective organizations surveyed HR leaders in order to identify trends. Here are the top nine:

TOP HUMAN CAPITAL CHALLENGES IN 2016
(PERCENTAGE OF ORGANIZATIONS; n = 143)

SHORT TERM (12 MONTHS) % LONG TERM (3–5 YEARS) %

Leadership capacity 52 Leadership capacity 48
Employee engagement 43 Employee engagement 34
Capacity to respond to rapid change 39 Changing nature of work and workplace 33
Changing nature of work and workplace 27 Aging workforce 32
Labour cost containment 26 Capacity to innovate 31

Sources: Anonymous, 2016 “9 Emerging Trends” HR Edge, Fall 2016, p. 17; The Conference Board of Canada, 2017, Workforce
Planning Practices in Canada: Human Resources Trends and Metrics, Fourth Edition, p. 8.

• Globalization • Mass customization • Social media
• Generational diversity • Open innovation • Personal technology
• Sustainability • Big data • Gamification

The Conference Board of Canada identified these issues:

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NEL 61CHAPTER 3 Environmental Influences on HRM

organizations have a person on staff, often the librarian, whose job is to bring informa-
tion to the consultants’ attention by actively scanning multiple sources.

// METHODS OF FORECASTING
HR professionals can use several methods to generate predictions about the future
or extrapolate from current events to determine their impact on HR practices. These
methods include trend analysis, the Delphi technique, nominal group technique, impact
analysis, and scenario planning, which are discussed in detail in Chapter 5. An excellent
evaluation of all these approaches can be found in Rothwell and Kazanas.6 The steps of
conducting a scenario-based HR planning are outlined in HR Planning Notebook 3.3.
Students are invited to experience a scenario-based technique as part of a group exercise
at the end of this chapter.

COMPETITIVE INTELLIGENCE
Competitive intelligence (or business intelligence) is a formal approach to obtain infor-
mation about your competitors. Learning about competitors’ moves early is critical for
organizations to respond before the new offering materializes. However, surveys showed
that only 23 percent of companies were able to do so.7 The simplest method is to study
their websites for information about their strategies and plans for product launches. Other
companies train their employees to ask questions from vendors about the purchasing
decisions of their competitors. Some organizations hire competitors’ employees to obtain
insider information about future plans. These practices border on illegal or unethical.
For example, Avon Products once allegedly hired private detectives to search through
the dumpsters outside the Mary Kay corporate offices. Information gathered through all
these competitive intelligence methods must be subjected to two evaluation questions:
Is the source reliable, and what is the likelihood of the information being correct?8

Competitive
intelligence
A formal approach
to obtain information
about competitors

HR PLANNING NOTEBOOK 3.3

SCENARIO-BASED HR PLANNING

Step one: Identify three business scenarios that might be
played out over the next five years (most desirable case,
most likely case, and least desirable case).

Step two: For each scenario, assess the firm’s HR
readiness. What are the challenges faced under each
scenario (e.g., labour shortages, safety concerns)? Then
identify the HR department’s strengths and weaknesses
in relation to these challenges.

Step three: Over the next five years, what are the
likely trends with rivals, employees, and candidates?

What are the threats posed by rivals? What are the pre-
dicted needs and motivations of key employees? What
changes do we forecast in the quality and the quantity
of our labour pool?

Step four: For each scenario, identify HR initiatives
and programs that must be undertaken to deal with the
threats and opportunities. For example, to meet a labour
shortage of skilled mechanics, a joint program with a com-
munity college might be established.

Source: Adapted from P. Boxall and J. Purcell, Strategy and Human Resource Management, 2nd ed. (New York: Palgrave Macmillan, 2008),
Figure 11.1, p. 294.

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Strategic Human Resources Planning NEL62

// CHALLENGES IN ENVIRONMENTAL SCANNING
There are problems in scanning the environment. These include our inability to accurately
predict the future and to isolate what really is important to HR. Can we say what the world
will look like in 2050? In 1900, could those working in HRM have predicted what it would
look like in 2000? Not likely, because the field of HRM did not exist then. One hundred
years ago, there were no payroll and benefits clerks. Even 20 years ago, it would have been
difficult to forecast the flattening of organizations; downsizing; the impact of technology,
outsourcing, and telecommuting; and a range of other changes we now experience. Most HR
strategists limit themselves to a two- to three-year period and extrapolate from current trends.

ISOLATING THE CRITICAL FROM THE INSIGNIFICANT
So much change is happening in so many arenas that scanners have trouble picking
out the truly important events. For example, which of these HR issues, taken from
headlines in HR publications as this text is being written, are critical and which will
prove insignificant: Drone delivery? Robots replacing 80 percent of manufacturing jobs?
One-third of the workforce selling its time, talent, or products online? Driverless cars?
Internet traffic coming from appliances or clothes? A cashless society?9

Four criteria have been suggested for identifying significant trends:10

1. Are there ripple effects (change in one aspect impacts another, such as social
networking sites affecting both friendships and professional relationships)?

2. How profound are the impacts on people’s priorities, roles, and expectations?
3. How large is the impact scope (number of people impacted)?
4. Will the changes endure over time?

One difficulty is that few trends exist in isolation—no issue is an island. Take the issue
of the difficulty of finding employees where labour shortages exist. There is a growing
concern that companies will be unable to find enough tradespeople. If this problem is
addressed in isolation, two solutions might be to (1) increase the number of spaces for
apprentices in trade programs and/or (2) recruit tradespeople from other countries. But
other trends may influence the ability to fill these jobs. The use of robots may change
the need for skilled workers. The abolishment of mandatory retirement may encourage
more tradespeople to continue working.

Just as there is a reaction for every action, for every trend there is a countertrend, and
countertrends seem to develop in tandem with the trends. As globalization increases, so
does “localization,” and ethnic pride in customs and culture rises. This is not the same
as the idea that the pendulum will always swing back. The current focus on work–life
balance cannot be viewed just as a fad, with the resultant expectation that there will
be another replacement fad within a few years. The concepts underlying work–life
balance will be embedded in our view of work, just as safety and labour laws are now
permanently embedded in the culture of work.

We will now examine the major areas that strategists typically scan.

// ENVIRONMENTAL FACTORS
HR strategists monitor a number of factors more closely because they are more closely
related to HRM. Following this tradition, we have included factors such as the eco-
nomic climate, the political and regulatory context, and issues related to technology,

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NEL 63CHAPTER 3 Environmental Influences on HRM

demographics, and social values and norms. For each factor we have provided some
current examples, keeping in mind that such examples quickly lose their relevance. In
scanning each factor, we want to consider its potential impact on the organization and
strategy in the near and the distant future, and how HRM can be adapted in response
to the environmental changes.

ECONOMIC CLIMATE
The economic indices we are so familiar with from the media are also important to HR strat-
egists. Let us look at a few examples of how these indices influence HR managers who are:

• Concerned with the unemployment rate because it affects their ability to recruit
• Worried about the cost of fuel and employees’ willingness to commute
• Worried about the value of the Canadian dollar because it affects the compa-

ny’s ability to sell products internationally, and thus affects employment levels
• Troubled by the amount of public debt because it affects business taxes, and

therefore a company’s ability to survive and grow
• Anxious about interest rates because they affect how much a company is

willing to borrow to grow its business and invest in employees

The recent economic recession, for example, has imposed many changes on HR
management in businesses. Many employers try to reduce fixed costs by replacing per-
manent jobs with contingent jobs. Surprisingly, this trend applies not only to low-paid,
low-skilled workers, but also to high-paid, high-skilled professionals and leaders. Refer
to HR Planning Today 3.2 for a discussion on the gig economy.

Deeper and longer recessions may result in permanent job losses as businesses close
operations and do not rehire laid-off workers, as would happen in a quicker economic
recovery.11

An important role of HR managers will thus entail becoming knowledgeable about
outsourcing. Interestingly, a drop in demand for contingent, temporary, and contract

HR PLANNING TODAY 3.2

THE GIG ECONOMY

The gig economy can be described as one in which
workers are hired for projects (gigs) and are not employed
full time. Because of technology, work does not need to
be tied to a time and a place. This is the main explanation
for the rise in the use of independent contractors. Experts
predict that 40–50 percent of workers will be part of the
gig economy by 2020.

These independent contractors are not just clustered
at the bottom of the labour pool, such as ride-hailing
drivers. Indeed, the rise of the supertemp (those top man-
agers and professionals who trained at the best schools
and have worked at leading organizations) represents a
shift in the labour economy.

Independent workers can be clustered into four
categories:

• Free agents who choose this work and derive their
income from it (30%)

• Casual earners who use it to supplement their
incomes (40%)

• Reluctants who would prefer traditional jobs (14%)
• Financially strapped who work like this out of

necessity (16%)

The advantages for organizations are obvious (lower
labour costs, reduced benefits, less training, etc.). But

(continued )

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Strategic Human Resources Planning NEL64

employees (as reported by search and placement firms) can also predict an economic
slowdown before these changes are reported by firms in their financial statements.

Other actions that are taken by HR managers to cope with economic uncertainty
include linking employee performance with organizational goals; increasing expecta-
tions of employee productivity; putting emphasis on succession planning and readiness;
investing in leadership development; using noncash rewards such as time off, time flex-
ibility, and learning opportunities; and retraining employees for new jobs.12

GLOBALIZATION
Another trend to watch is increasing globalization. Globalization is the growth in flows
of trade and financial capital across borders. Globalization affects sovereignty, prosperity,
jobs, wages, and social legislation. In North America, the North American Free Trade Agree-
ment (NAFTA) was established in 1994 among Canada, the United States, and Mexico
to gradually remove tariffs and other trade barriers in the region. It has almost tripled the
trilateral merchandise trade since 1994 to over $1 trillion in 2016, which has significantly
impacted businesses in these three countries. (NAFTA is currently being renegotiated.)
The labour market in Canada is also affected—it has been estimated that one in five jobs
in Canada is related to international trade.13 This has implications for recruiting and
managing international human resources. Compared to the United States in particular,
employees in lower-level jobs in Canada on average receive higher pay than their coun-
terparts in the United States, while professionals and those in higher-level positions earn
less than those in the United States. As NAFTA makes the workforce more mobile across
the border, Canadian businesses need to work hard to retain the best knowledge workers.

The shift in the global economy has also been marked by the rapid growth of
emerging economies such as India and China. These countries had workers who were
willing to work longer hours for less money than workers in more developed coun-
tries. McDonald’s has a great deal of experience in globalization, and when the com-
pany launches a restaurant in a new country, it works closely with all disciplines to
“McDonaldize” a team so that they know the business inside out. Eighteen to 24 months
before the restaurant is opened, the company starts with HR. Some of the HR challenges
McDonald’s has faced in other countries include the fact that part-time employment
and multifunctional jobs simply did not exist.14

one issue emerges—how do organizations persuade
workers to work when they are needed? Uber employed
social and data scientists to solve the problem that
drivers have complete control over the hours they choose
to drive. So how does Uber motivate them to drive when
demand is high? The scientists discovered that drivers
were signing off before they reached 25 rides, when they

could earn a bonus. So, the drivers were sent messages
such as “You’re halfway there!” Uber also dispatches a
new ride for the driver before the current ride is finished.
Drivers can also alert the company that they need to be
at a certain location by 4 pm (e.g., to pick up a child
from school) and Uber will send them clients close to
that location.

Sources: N. Titleman Colla, 2017, “So Long, Future of Work…Hello, New World of Work” The Globe and Mail, July 7, 2017, B 12; James Manyika,
Susan Lund, Jacques Bughin, Kelsey Robinson, Jan Mischke, and Deepa Mahajan, 2016, Independent work: Choice, necessity, and the gig economy,
https://www.mckinsey.com/global-themes/employment-and-growth/Independent-work-Choice-necessity-and-the-gig-economy, McKenzie Global
Institute. Retrieved October 17, 2017; and Scheiber, N. 2017, “How Uber uses psychological tricks to push its drivers,” Miami Herald, April 4, 2017,
pp. 1B and 2B.

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NEL 65CHAPTER 3 Environmental Influences on HRM

Globalization issues now include crisis management and evacuation in cases of
terrorism, civil war, and the outbreak of infectious diseases, such as Zika. HR managers
will need to develop international competencies, as discussed in Chapter 11.

POLITICAL AND LEGISLATIVE FACTORS
Governments, municipal, provincial, and federal, can influence the business environment
through political programs that result in changes to laws and regulations. For example,
governments that wish to create jobs emphasize tax cuts, provide tax incentives to
develop jobs, increase job-training opportunities, and create balanced labour legislation.
Governments can spur economic growth by reducing the public debt, balancing the
budget, and cutting taxes. Such measures encourage businesses to invest in that province
(or in Canada as a whole) and encourage consumers to spend, resulting in more jobs.

The employer–employee relationship is governed by a legal framework that includes
common law (judicial precedents that do not derive from specific laws), constitutional
law (e.g., the Charter of Rights and Freedoms, acts of federal and provincial parliaments),
and contract law (e.g., collective agreements). You are probably familiar with some of
these laws. For example, each province has employment standards that establish the
maximum number of hours to be worked each day and human rights legislation that
prohibits discrimination on the basis of sex, race, and so on.

HR professionals need to continuously monitor legislative changes and ensure
compliance with legal requirements. For example, the Ontario government is proposing
legislation to ensure that seasonal and part-time employees are paid the same wage as
those doing the same job on a full-time basis.

The decisions not governed by law are usually governed by morals or an ethical
code. The concept of ethics is not as clear as laws are. Ethical and moral decisions and
practices go beyond the law, from “you must” to “you should.” An employer can require
an employee to work overtime and not pay him or her overtime rates (as required by
the law). How? The employer gives the employee the title of “manager” (a category
exempted from overtime regulations), even when the employee has no managerial
responsibilities. Legal? Maybe, but not ethical.

Ethical issues are sometimes raised and resolved by employees, and sometimes
organizations have official policies on ethics. For example, most organizations have
explicit guidelines on the kinds of “gifts” (kickbacks) that employees may accept from
suppliers. But most HRM ethical decisions are much more complicated. Should a com-
pany produce goods in a country that employs child labour? Should an organization
eliminate one unit (laying off the staff in the process) only to subcontract the work to
an outside supplier that employs workers at one-half the compensation rates? Before
government steps in with regulations, one important role of HR is to discourage risky
behaviours of executives.15

Politics also play a role. The “America First” policies of American President Trump,
combined with his anti-immigration attitudes, have resulted in a rise in applications for
Canadian jobs and educational institutions from foreigners.

TECHNOLOGICAL FACTORS
Technology is the process by which inputs from an organization’s environment are
transformed into outputs. Technology includes tools, machinery, equipment, and soft-
ware. Robots are replacing human for repetitive and dangerous tasks. As robots become

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Strategic Human Resources Planning NEL66

affordable, and artificial intelligence improves its voice recognition,
large numbers of workers will be displaced.16

Technology has already had a large impact on HR and is pre-
dicted to continue to do so at an even faster pace. Computer net-
works and cloud computing make it possible to store and manage
unlimited amounts of data. Social media has influenced how orga-
nizations recruit, check references, and manage the off-site conduct
of their employees.

HR Planning Notebook 3.4 outlines the impact of technology.
Every HR function has the potential to become managed

electronically. The trend started with payroll and benefits; now
software is used to manage training data and succession manage-
ment information. Online counselling for managers is available,
and managers can complete performance appraisals interactively.
E-learning is the single most used application on the web.17 As the
hardware becomes smaller and the software becomes smarter, we
can expect most HR functions to be managed electronically. HR
professionals will need to become technology savvy and/or learn
skills of managing vendors of technology solutions.

As well, HR professionals will need to follow trends in the
automation of jobs. For example, the Iron Ore Company of Canada
uses automatic driverless trains to move ore from the mines, thus
reducing the need to hire drivers. IOC states that if the organization
had not adopted automation and new technology, its vacancy rate
would be 2000 positions, not the current 200 positions.18

See Chapter 8 for a complete review of HR and IT.

HR PLANNING NOTEBOOK 3.4

IMPACT OF TECHNOLOGY ON ORGANIZATIONS

• Requires changes in skills and work habits of
employees: Employees have to be provided with
constant training, and skills are no longer viable
for decades.

• Elimination of some lower-level positions and
layers of management: Routine tasks, normally
done by those lowest in the organization hierarchy,
are automated, and the surviving employees need
more advanced skills. Fewer managers and fewer
layers of management are needed.

• Less hierarchy, more collaboration: The adoption
of technology decreases the need for management

as a supervisory control technique. Power has
shifted from management to technical workers,
who hold the knowledge about system processes.

• Telecommuting options: Telecommuting allows
employees to locate farther from their offices,
and allows employers to choose office facilities
farther from major cities.

• Electronic monitoring and employee privacy:
Employers monitor email, social media etc. for
several reasons, including legal compliance and
liability, performance assessment and productivity
measures, and security concerns.

Sources: Reh,J., “Your boss is watching you,” http://management.about.com/cs/people/a/MonitorEE062501.htm. Retrieved December 9, 2014;
Jeffrey A. Mello, Strategic Human Resource Management, 1st ed., © 2002, reprinted with permission of South-Western, a division of Thomson
Learning, www.thomsonrights.com; and SHRM, Workplace Forecast: A Strategic Outlook, 2004–2005, SHRM 2004.

HR professionals can analyze data to track trends and
predict employee behaviour.

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NEL 67CHAPTER 3 Environmental Influences on HRM

DEMOGRAPHIC FACTORS
Demographics, the study of population statistics, affect HR profoundly. The increasing
number of working women, the greying of the workforce, and the number of generations
working together all influence HR practices.

THE LABOUR MARKET

The labour market is the most important demographic factor that should be monitored
by HR professionals. A labour market is the area from which an organization recruits
its employees. Such an area may be metropolitan, regional, provincial, national, or
international. The number of people available for work depends on factors such as the
unemployment rate, geographic migration, graduation rates from educational institu-
tions, and so on. Demographic issues facing Canadian employers include the underuti-
lization of designated groups, especially those with disabilities and Aboriginal people,
the impact of the baby boomers retiring and the rethinking of what it means to retire,
and the educational choices of young students.

One trend facing Canadian workers is the dramatic reduction in semi-skilled jobs
(those requiring a few courses or on-the-job training) in sectors such as manufacturing
and resources. These jobs no longer exist and workers do not have the skills to apply
for high-skilled jobs such as engineering technicians, for which employers face labour
shortages.

Sources for labour will become international. Ford, General Motors, and Nestlé
already employ more people outside their countries than within. Employers will go
where the skilled employees live. Because of India’s huge population of English-
speaking software engineers, companies such as Microsoft have employment centres
in India.

Any introductory HR textbook will outline the nature of Canada’s labour market.
The labour market influences an organization’s ability to implement strategy. An

organization may decide to enter the high-tech field only to discover itself unable to
recruit enough electrical engineers to meet its personnel requirements, and so must
abandon this particular strategy. Companies wishing to grow are facing problems in
recruiting and retaining qualified scientists and technologists. There is a growing con-
cern with the division of labour in Canada: the shortage of people with the right skills
who can earn good money and expect benefits, and the surplus of people available to
work in “McJobs.” Human Resources and Skills Development Canada (HRSDC), the
government department concerned with employment issues, is addressing this concern
through its National Skills agenda, which will encourage companies to increase their
training budgets by one-third (to be in line with other countries), and by requiring that
65 percent of adult immigrants have postsecondary education.19

DIVERSITY

There is increasing diversity in the workforce. Terms such as minority and majority have
lost their meaning. People may object to overly broad classifications such as Asian, pre-
ferring, for example, Japanese-Canadian or Korean-Canadian.20 The increasingly diverse
workforce demographics present challenges as well as opportunities for organizations
to meet their talent needs. The ability of businesses to tap into underutilized pools of
highly educated minority groups and effectively manage the diverse workforce will be

Demographics
The study of population
statistics

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Strategic Human Resources Planning NEL68

an important source of competitive advantage in the future. Organizations that tracked
representation of diversity groups were more likely to do so for new hires (50 percent)
than for a leadership succession pool (17 percent). As a result, although visible minori-
ties represented 16.3 percent of the overall workforce, only 3.3 percent of senior execu-
tives were minorities.21 Given the competition for critical skills, organizations that are
able to exploit diverse talent will gain competitive advantage. Organizations may take
advantage of inclusion programs, such as catering to communication styles and offering
customizable benefits programs to engage different groups.22

GENERATIONAL DIFFERENCES

The supply of baby boomers (those born between 1946 and 1964) exceeds the demand
for them in middle management and senior ranks. The combination of the surge of
workers in their 50s and the flattening of organizations has created a cadre of plateaued
workers who are approaching retirement. Surveys showed that of the 6 percent of the
Canadian workforce who were eligible to retire in the next 12 months, only 1 percent
expected to retire.23 The Income Tax Act may have to be changed to allow phased-in
retirement, and HR planners will have to make work adjustments to accommodate
these requests.24

“Baby busters” (those born between 1965 and the mid-1970s) follow the boomers,
who have created a bottleneck in the organization. There are far fewer baby busters,
and most are very well educated and trained, so can command significant incomes.

Gen X employees (those born between the mid-1970s and 1980) have lived with
technology all their lives. They have fewer expectations of organizations and perceive
themselves as independent agents. Members of Gen Y, also called Millennials, born
after 1981, are completely comfortable with technology and have a more global and
tolerant outlook than people older than they. Gen Y employees are not very interested
in climbing a career ladder; indeed, they assume that they will change jobs frequently.

Generation Z or iGen (born after mid 90s) value family connections (including a
sense of order and predictability), have an ability to multi-task and use social media
instead of face-to-face interactions, and can manage both simultaneously, because of
their gaming experience.25

For HR managers, an important consideration is how to vary HR practices to
engage and motivate these different generations of workers who also have different
work values and preferences. HR managers also need to consider how to capitalize on
Gen Y employees’ knowledge and skills during the short period when they are hired
by the company. Instead of continuing to employ people “from the shoulder down,”
HR managers need to unleash individuals’ creativity “from the neck up.”26 Some
considerations of intergenerational differences in HR management are outlined in
HR Planning Today 3.3. The implication for HR managers is the need for employee
segmentation, in the same way that marketers segment customers. HR professionals
are often preoccupied with “fairness and equity,” which is often translated into exactly
the same policies and programs for all employees. But in the same way that a gardener
will give different types of flowers different amounts of water, sunshine, fertilizer etc.,
in order to create ideal growing conditions, HR managers will have to segment or
customize career management models for different types of employees. Instead of an
employee value proposition offered by organizations, a personal value proposition
will be created.27

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NEL 69CHAPTER 3 Environmental Influences on HRM

SOCIAL AND CULTURAL FACTORS

RIGHT TO PRIVACY

Society can express its intent through laws and regulations, and in less formal ways
within organizations through discipline and terminations. One issue getting more
and more public attention is the right to privacy. Does the employer have a moral
(and legal) right to monitor employee activities through video surveillance cameras or
reading email? Dow Chemical Co. terminated 50 employees and disciplined another
200 because these employees downloaded, saved, or distributed offensive material using
the company’s email system. (Those who merely opened and deleted the material were
not reprimanded.)28

WORK–LIFE BALANCE

Another issue is the employee’s attempt to balance a personal life with an ever-
more-encompassing work life. Research on hours worked indicates that Canadians are
spending more time at work. Many employees face the challenge of trying to spend

HR PLANNING TODAY 3.3

WORKFORCE STRATEGIES FOR DIFFERENT GENERATIONS

Source: Adapted from Tapia, A. (2009). “The Emerging Diverse Workforce: Implications of a Global Demographic Tsunami for Organizations in Canada.”
Copyright Andrés T. Tapia 2009.

BABY BOOMERS GENERATION X GENERATION Y
Communication Show respect

Choose face-to-face
Get to the point
Use email generally, but
face-to-face to deal
with issues

Orient them quickly
Email and instant
messaging are preferred

Development and
job design

Acknowledge
accomplishments
Create an open work
environment

Give them space to
explore and find solutions
Lighten up! Work can
be fun

Provide feedback quickly
Challenge them
Outline the end game for
each task

Recruitment Use headhunters
Advertise in
newspapers

Go through social networks
Create employee
referral programs

Utilize technology (Facebook etc.)
Allow space for parental input

Retention Develop solutions to
postpone retirement
Highlight value and
contributions to the
company

Get over the notion of
having to pay one’s dues
Provide flexible work
solutions
Set up clear steps for
advancement

Find them a mentor
Allow them to contribute
to the community
Introduce new
opportunities frequently

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Strategic Human Resources Planning NEL70

quality time with their families while vigorously pursuing a career. People are generally
most active in moving ahead in their careers between the ages of 25 and 45, exactly
the stage at which most people raise their children. Both roles are demanding; both
require long hours, during the same period (6 a.m. to 10 p.m.). The demographics of
the aging workforce mean that working adults will be stressed by the extra demands of
caring for their elderly relatives, estimated to consume about 23 hours each month.29
Organizations have responded to this issue by increasing workplace flexibility. Some
options include flextime, part-time work, job sharing, telecommuting, elder care, and
child care. The issue of employee well-being is also on the collective bargaining table,
with unions asking for family support benefits such as subsidies for child and elder
care, and access to wellness facilities. Although the unionized workforce is changing
to include more women and older workers, many of the traditional union members,
such as low-wage and hourly workers, factory and service workers, and outside workers,
cannot take advantage of benefits such as flexible work hours, telecommuting, or on-
site gyms.

CONTINGENT WORKERS

Another significant trend in Canada is the continuing growth of contingency workers
(part-time, temporary, seasonal, and contract workers). These workers may or may
not voluntarily choose to pursue contingency employment and experience different
work–life challenges than traditional workers.30 For example, research shows that
seasonal workers experience fewer developmental opportunities at work and are often
treated as “costs” rather than “assets” in organizations. Not surprisingly, they report
lower commitment to the organization and focus only on completing their assigned
tasks.31 As these contingent modes of employment continue to increase, HR needs to
reconsider how to strategically manage these employees to gain competitive advantage.
If the organization cannot promise long-term employment, benefits, or develop-
mental opportunities, what other practices can be equally effective in engaging these
employees?

STAKEHOLDERS
In addition to general environment, organizations also need to consider the industrial
and organizational environment, particularly the relevant groups in this context. Many
groups have an influence on the organization’s strategy. These groups, referred to as
the stakeholders, hold expectations of the HR function that can influence HR strategy
and practices.

Stakeholders are groups of people who have an interest in the projects, policies,
or outcomes of an organization’s decisions. Sometimes called constituent groups,
they follow the actions of the organization and lobby to have their interests satisfied.
These stakeholders affect strategy formulation. Employees want higher wages and job
security, suppliers want longer-term relationships, customers want faster service, and
shareholders want more dividends and higher stock prices. Organizations will often
adapt their strategies to accommodate powerful stakeholders such as unions, regulatory
agencies, or customers. Let us look at some of these organizational stakeholders and
their interest in HR.

Stakeholders
Groups of people who
have vested interests
in an organization’s
decisions

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NEL 71CHAPTER 3 Environmental Influences on HRM

THE BOARD OF DIRECTORS AND SENIOR EXECUTIVES

This group develops the vision, mission, strategy, and objectives for the organization.
As a group, the HR issues that interest them the most include the workforce implica-
tions of strategic options such as restructuring, outsourcing, mergers and acquisitions,
and going international (all these HR implications are discussed in separate chapters
in this text). They have a particular interest in succession management (Chapter 7) and
leadership development.

Much of the research on HR planning recognizes the powerful influence of the CEO
on the organization’s ability to attain its goals. The concept of the rational manager
is well embedded in our business psyche. We assume that the head of an organization
carefully analyzes the environment—looking at competitors’ actions and technological
changes—and then decides the best strategy to exploit opportunities and corporate
strengths. But hearts may be as influential as heads. Managers are more than rational
actors; they have personal values, ethics, attitudes toward risk, and ambition.32

Research has shown that different types of strategies require different types of man-
agers and executives. Studies of these managerial elites have found that managers with
certain personalities—for example, those with a tolerance for ambiguity—managed firms
with a growth strategy more successfully than those with a harvest strategy.33

SENIOR MANAGEMENT

Senior managers are typically responsible to the executives
for the execution of the strategy and organizational per-
formance. Therefore, they are most interested in the HR
programs and practices that affect performance: workforce
planning and utilization, incentive compensation, training
and development, and performance management systems.
They want metrics that spotlight performance indicators
such as employee commitment scores, absenteeism, and
turnover rate—all discussed in Chapter 14.

SUPERVISORS

This group is responsible for the management of employees
and their role in meeting organizational goals. As a group,
they want HR to help them with recruitment, selection, com-
pensation, training and development, coaching, and policy
development. Their needs are often based on individual
employee issues such as poor performance (and the need to
terminate an employee) or difficulties in recruiting specialists.

EMPLOYEES

Employees want the HR department to expedite their
requests efficiently, confidentially, and fairly. They want
HR policies that enable them to be satisfied at work, and
to develop skills to be able to do their jobs, now and in the

The board of directors develop the vision, mission, and strategy
of the organization.

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Strategic Human Resources Planning NEL72

future. They are concerned with HR policies on compensation, training and develop-
ment, health and safety, and overall working conditions.

As has been indicated earlier, sometimes an organization’s strategy is influenced
by the kinds of competencies it already possesses. Likewise, strengths can reside in the
HR department itself. If the HR department has excelled in its ability to grow rapidly
by attracting, hiring, and orienting highly qualified candidates, corporate venturing or a
joint venture becomes an attainable goal. If culture management is the HR department’s
strength, mergers and acquisitions can be considered a strategic option.

UNIONS

The presence of unions in the environment will affect HRM strategy for firms entering
new sectors with high unionization rates. Employees who are currently unionized within
an organization can influence strategy in two ways. One is a restrictive way, in which the
collective agreement limits an organization’s ability to make drastic changes in working
methods or jobs to accommodate changes in strategic direction. A second way is that
unions now play a larger role and are more cooperative than adversarial with regard to
HR practices such as profit sharing, plant locations, selection procedures, and quality
improvement. Savvy HR planners keep track of the policies of key unions such as the
Canadian Auto Workers (CAW), because they set the benchmark for hourly workers
in Canada. Any innovative benefit will filter through the economy and affect other
organizations’ negotiations. The key issues for unions are job security, income security,
working hours, and inflation protection.34 Unionized employees receive higher wages
and have better working conditions than their non-unionized counterparts.35

RESPONDING TO EXTERNAL FACTORS
While it is interesting to attempt to assess all the changing factors that might affect your
organization, the reality is that managers have limited time and resources to monitor every-
thing. Most organizations use an issues priority matrix to determine which are the important
trends that may affect them. Using Table 3.1, managers can then rate, from high to low:

1. The probability of these trends actually occurring
2. The likely impact of each of these trends on the organization

PROBABLE IMPACT ON ORGANIZATION

HIGH MEDIUM LOW

PROBABILITY OF
OCCURRENCE

HIGH High priority High priority High priority

MEDIUM High priority Medium priority Low priority

LOW Medium priority Low priority Low priority

Republished with permission of Elsevier, from Long Range Planning, Vol. 17, No. 3, L. Lederman, “Foresight Activities in the USA: Time for
a re-assessment,” 1984; permission conveyed through Copyright Clearance Center, Inc.

TABLE 3.1

ISSUES PRIORITY MATRIX

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NEL 73CHAPTER 3 Environmental Influences on HRM

A PROACTIVE APPROACH
Some HR managers do not like passively observing the game through their windows; they
want to participate and influence how the game is played. Thus, we find most profes-
sional associations have a group that lobbies for legislation that will favour the association
membership. Most have public relations firms that try to shape the perception of the
profession and its goals (thus influencing public opinion favourably toward regulations).

After the environmental scanning, companies can analyze the business environ-
ment to determine the impact on the organization and the actions that the organization
needs to take. Organizations can use a SWOT analysis to determine the impact on the
organization. HR Planning Today 3.4 describes in detail how the Global Wood Group
company scans the external environment to identify threats and opportunities.

Figure 3.1 summarizes the environmental and industrial factors that organizations
need to scan and monitor to determine the impact on organizational strategy and HR
management. On the basis of these analyses, organizations then further reposition
the business competitive strategy and develop competitive advantage, as discussed in
Chapter 1.

HR PLANNING TODAY 3.4

THE GLOBAL WOOD GROUP

The Global Group of Companies (https://www.globalfur-
nituregroup.com/ca) is a privately owned vertically inte-
grated manufacturing organization in the Toronto area.
Global Wood, which designs and manufactures office
furniture primarily from engineered wood panels, has
developed over the past few years into the Global Wood
Group, a semi-autonomous division of the Global Group
of Companies. On average, over 80 percent of the Global
Wood Group’s production is exported to and sold in the
United States.

The furniture manufacturing industry in Canada suf-
fered from a number of negative external events following
the onset of the Great Recession, which resulted in a large
number of companies ceasing to manufacture or greatly
reducing their Canadian manufacturing operations.

Fortunately, the Global Wood Group had already
undertaken a number of proactive measures and these
allowed it to largely “weather the storm.” The Human
Resources function was revamped with an increased
focus on strategic and operational initiatives. Payroll was
transferred to accounting and day-to-day benefits admin-
istration was outsourced to a third party. Human Resources
instead assumed responsibility for leading the develop-
ment and implementation of a number of “management
systems.”

Environmental scanning is a key component of the
Global Wood Group’s strategy, and a requirement for all
managers, who meet weekly to review issues, goals, and
accomplishments, and to devise upcoming projects. Mana-
gerial staff at the Global Wood Group access information
from external sources via:

1. Professional associations: Organizations such as the
Wood Manufacturing Council and the Canadian Home
Furnishings Association and Canadian Manufacturers &
Exporters Association lobby governments on behalf of
manufacturers. Liaising with these groups provides
the Global Wood Group with information; for example,
previous changes to American government policy
regarding the importation of furniture from Asia and
proposed changes to applicable free trade agreements.

2. Trade publications: Publications such as Wood
Industry, Woodworking, Materials Management &
Distribution, and Woodworking Network reveal infor-
mation about new products coming onto the market,
new techniques, and the latest offerings of equipment
manufacturers.

3. Professional conferences and seminars: At confer-
ences hosted by organizations such as the Canadian

(continued )

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Strategic Human Resources Planning NEL74

Woodworking Council, the American Home Furnish-
ings Alliance, and various industry tradeshows,
Global Wood Group representatives are able to visit
the displays of organizations selling machinery and
equipment to furniture manufacturers and to ascertain
which companies are purchasing machinery and what
production techniques they are using.

4. Participation in a WSIB-approved Safety Group rep-
resenting key players in the industry and participa-
tion in WSPS-sponsored information and networking
sessions.

Through these scanning activities, GW has been able
to assess threats and opportunities.

Threats

Policies set by the Provincial Government in Ontario have
greatly impacted costs at the Global Wood Group.

1. Increases in the cost of electricity.
2. Elimination of mandatory retirement. Many of the staff

of The Global Wood Group were hired at a relatively
advanced age and have chosen to continue working
rather than retire.

3. Recent increases in the minimum wage have had an
inflationary impact on overall wages.

4. Proposed changes to trade agreements between
Canada and other nations.

Other challenges include:

1. A deficit in the supply of skilled tradespeople. Orga-
nizations such as the Global Wood Group require
maintenance technicians, tool and die makers, cabi-
netmakers, and other skills that are increasingly in
short supply.

2. Fluctuating currency/exchange rates.

Opportunities

Key strengths and opportunities were identified:

1. Proximity to customers, which enables a rapid
response to order fulfillment: The Global Wood Group
decreased average turnaround time for orders from
the traditional 30 days required by most competitors
to shipment within 3 days of receipt of an order.

2. Implementation of internationally recognized man-
agement systems, which improved the Global Wood
Group’s efficiency by instituting measurement of
every factor in the manufacturing process.

a. ISO 9001 Quality Management was the first
system implemented. This required that each
worker in the manufacturing process complete
an inspection on each piece that they handle
and stamp the accompanying production sheet
with their own individually issued stamp, so that
each piece can be tracked. This has allowed the
Global Wood Group to decrease defective pieces,
reducing customer complaints and rework. Defect
rates are now .02 percent of pieces produced.

b. ISO 14001 Environmental Management was next.
Reducing the shipment of defective pieces initially
resulted in increased scrapping of raw materials.
The Environmental Management program con-
verted the Global Wood Group to a “zero waste to
landfill” mandate. All scrap and waste is recorded
and continuous improvement goals set. All staff
are responsible for sorting any scrap, recording it
and whenever possible finding ways to re-use it.
Through rigorous controls, the amount of scrap per
unit produced has been reduced by 68.36 percent
since the implementation of this program.

As an offshoot of this environmental program the fol-
lowing were also implemented:

• An OHSAS 18001 program in occupational health
and safety was implemented. This program has
resulted in the companies of the Global Wood
Group reducing their lost-time injury costs by over
90 percent since the program was initiated and
receiving rebates and/or credits averaging over
$40 000 each year from the WSIB.

• Finally, faced with increasing electrical costs, an
ISO 50001 program was implemented. Using “real
time” measuring equipment on each piece of pro-
duction machinery, the Global Wood Group is able
to determine the cost of energy per unit produced
and set ambitious goals to reduce energy per unit
produced. Meeting these goals and qualifying for
certification to this standard has resulted in signifi-
cant cost savings, as well as credits and rebates

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NEL 75CHAPTER 3 Environmental Influences on HRM

from various levels of government and/or govern-
ment agencies. To date, only 15 organizations in
all of Canada have attained this international stan-
dard. Since the implementation of this program,
the Global Wood Group has reduced the amount
of energy used per unit produced by more than
10 percent from the benchmark production year
and has received just under $200 000 in grants
and rebates for their energy management proj-
ects. As this program matures and as energy costs
escalate, the savings will only continue to increase.

Implementation of the Energy, Environmental,
FSC, Sustainable Manufacturing, and Corporate Social

Responsibility standards has ensured that the Global Wood
Group is qualified as a supplier for numerous government
contracts that require compliance to environmental pro-
grams and also qualifies the purchasers of Global Wood
Group products for LEED credits.

In order to attain certification to these international
standards, the Global Wood Group has to have in place
formalized policies and procedures, and training programs
to track and monitor all aspects of the production process.
In addition, each management program requires an annual
external audit, conducted by internationally accredited
auditors.

Case prepared by Dan McGarry, Vice President Human Resources, the Global Wood Group, 2017.

HR Forecasting and
Assessing

• Determining issue priority
• SWOT analysis
• Scenario planning

Scanning and
Monitoring the

Business Environment

• Porter’s Five Forces
• Stakeholders (management,
employees, unions)

Scanning and
Monitoring the General

Environment
Economics, globalization, politics

and legislation, technology,
demographics, social and

cultural factors

FIGURE 3.1

THE ENVIRONMENTAL ANALYSIS PROCESS

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76 NELStrategic Human Resources Planning

// SUMMARY
HRM strategy is determined primarily by organizational strategy. However, environ-
mental factors also shape HRM strategy, so HR managers and planners have to continu-
ally monitor the environment. Typically, they scan by reading publications, retaining
memberships in professional associations, attending conferences, or using professional
scanners. A number of methods, such as trend and impact analysis and the Delphi
technique, are used to identify future trends. The environmental factors monitored
include the economic climate, the political and regulatory climate, and social norms.
Stakeholders such as shareholders, unions, customers, and executives contribute strongly
to the formulation and implementation of strategy.

KEY TERMS
competitive intelligence p. 61
demographics p. 67
environmental scanning p. 57
stakeholders p. 70

DISCUSSION QUESTIONS
1. Search for workplace trends affecting Canadian employers. Using the issues priority

matrix (Table 3.1), rate the probability of these issues impacting your career.
2. Using your school as an example, find one trend in each of the areas (economics,

globalization, political/legislative, technology, demographics and social/cultural)
that will impact enrollment in your school.

3. Employees spend an average of 43 minutes a day at work on personal mobile devices.
A company in the United States implanted a micro chip in employees (who had
volunteered to have this done) to prove the identity of the user and increase security
and privacy. What policies should the HR department develop in anticipation of
the continuing use of technology?

4. Some HR professionals are suggesting that employers not “stereotype” generations
and treat them differently. Argue the pros and cons of establishing different HR
policies for different generations.

EXERCISES: SCENARIO PLANNING
Practise the scenario planning technique for Amazon using the steps below.

1. Form a group of four to six people. Discuss what Amazon will experience, taking into
consideration the changes that may occur in the general environment (economics,
globalization, political/legislative, technology, demographics, and sociocultural
factors etc.) and Amazon business environment (suppliers, competitors, especially
Alibaba; customers, senior management, employees etc.). Identify three business
scenarios that might play out in the next five years (most desirable case, most likely
case, and least desirable case).

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77CHAPTER 3 Environmental Influences on HRM NEL

2. For each scenario, assess the firm’s readiness. What are the challenges faced under
each scenario? Identify HR’s strengths and weaknesses in relation to these challenges.

3. For each scenario, identify HR initiatives and programs that must be undertaken
to deal with the changes.

4. Prepare a group report on the future of the job.
5. Present this report to the class.

After the presentations, discuss the challenges of predicting the future in this manner.
Should HR planners not scan the environment because of these problems? Is there a
better way?

CASE STUDY WORK–LIFE FAMILY BALANCE

Magda Hyshka, manager of HR policies for TelPlus, the largest telecommunica-
tions company in Canada, had been asked by her director of HR to develop an
innovative policy to address the work–family issues facing the company. As part
of her research, Magda uncovered the following facts:

• Workers spend an average of 50 hours a week on job-related activities and
more than half bring work home.

• Canadian workers are feeling more stress, caused by an insufficient salary,
work overload, and a negative work environment.

• About half of Canadian workers spend 22 hours a week on child care, and
about 25 percent spend 9 hours a week on elder care.

• Work–life conflict negatively impacts performance, causing employees to
be absent from work, reduce productivity, and increase use of benefits.

• Technology enables employees to work seven days a week and at any time
during the day or night, and many felt that they were expected to be avail-
able (online) all the time.

• While Canadians are insisting on more work–life balance, Asian workers
with equivalent qualifications were willing to work long hours for less
than half the pay.

Sources: Duxbury L. & Higgins, C., “Revisiting work life issues in Canada: the 2012 National Study
of Balancing Work and Caregiving in Canada,” http://www.healthyworkplaces.info/wp-content/
uploads/2012/11/2012-National-Work-Long-Summary.pdf, retrieved December 1, 2014; Y.A. Laroche,
Fine Balance, Ottawa: Canadian Centre for Management Development, 2000; J. Schramm, J. Coombs,
and J. Victor, Workplace Forecast, Alexandria, Virginia: SHRM, February 2011; Morrow, J., “Studies stress
economic cost of depression in the workplace,” Canadian Occupational Safety Magazine, http://www
.cos-mag.com/health-page/health-page-stories/studies-stress-economic-cost-of-depression-in-the-
workplace.html, retrieved December 10, 2014.

QUESTIONS

Continue the research started by Magda. Prepare a report summarizing your
findings and recommending policies that will help your employees cope with
work–family balance issues.

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78 NELStrategic Human Resources Planning

// REFERENCES
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k _w� `c� qsnnpcqqcb� dpmk � rfc� [email protected] � _l b-mp� cAf_nrcp&q’,� Lcjqml � Cbsa_rgml � pcqcpt cq� rfc� pgefr� rm� pck mt c� _bbgrgml _j� aml rcl r� _r� _l w� rgk c� gd� qs`qcoscl r� pgefrq� pcqrpgargml q� pcosgpc� gr,

79CHAPTER 3 Environmental Influences on HRM NEL

23. The Conference Board of Canada, June 2010.
24. Langton, J. 2005. “Accountants Offer Two Cents on Aging Workforce.”

Canadian HR Reporter, Vol. 18, No. 4: 3.
25. https://www.knoll.com/knollnewsdetail/generation-z-infographic. Retrieved

October 20, 2017.
26. Adams, A. 2010. “Changing Role of HR.” Human Resources, June: 45–48.
27. Boudrea, J. W., and I. Ziskin. 2011. “The Future of HR and Effective Organi-

zations.” Organizational Dynamics,” 40: 255–266.
28. Currie, M.B., and D. Black. 2001. “Emerging Issues in the Electronic

Workplace.” Ivey Business Journal, Vol. 65, No. 3 (January/February): 18–29.
29. Tomlinson, A. 2002. “Trickle Down Effects of Retiring Boomers.” Canadian

HR Reporter, Vol. 15, No. 11 (June 3): 1, 12.
30. Connelly, C.E., and D.G. Gallagher. 2004. “Emerging Trends in Contingent

Work Research.” Journal of Management, Vol. 30: 959–983.
31. Ainsworth, S., and A. Purss. 2009. “Same Time, Next Year? Human Resource

Management and Seasonal Workers.” Personnel Review, Vol. 38: 217–235.
32. Guth, W.D., and R. Tagiuri. 1965. “Personal Values and Corporate Strategy.”

Harvard Business Review, Vol. 43, No. 5 (September/October): 123–132.
33. Gupta, A., and V. Govindarajan. 1984. “Business Unit Strategy Managerial

Characteristics, and Business Unit Effectiveness at Strategy Implementa-
tion.” Academy of Management Journal, Vol. 27: 25–41.

34. Brown, D. 2002. “CAW—Big Three Negotiations Set the Mark.” Canadian
HR Reporter, Vol. 15, No. 12 (June 17): 3, 12.

35. Lawler, E.E., and S.A. Mohram. 1987. “Unions and the New Management.”
Academy of Management Executives, Vol. 26, No. 1: 293–300.

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k _w� `c� qsnnpcqqcb� dpmk � rfc� [email protected] � _l b-mp� cAf_nrcp&q’,� Lcjqml � Cbsa_rgml � pcqcpt cq� rfc� pgefr� rm� pck mt c� _bbgrgml _j� aml rcl r� _r� _l w� rgk c� gd� qs`qcoscl r� pgefrq� pcqrpgargml q� pcosgpc� gr,

NEL

CHAPTER LEARNING OUTCOMES
AFTER READING THIS CHAPTER, YOU SHOULD BE ABLE TO:

• Understand what HR forecasting is, and its strategic importance to the firm.
• Understand the value of human capital to the firm, and discuss the difference

between generic human capital and firm-specific human capital.
• Discuss the differences between stocks and flows of human capital, and

comprehend the implications that stocks and flows have for HR planning.
• Understand the rationale for giving special attention to specialist/technical

workers, managers, recruits, and designated groups in the HR forecasting
process.

• Comprehend the forecasting process in general, and the categories of
forecasting methods.

• Outline the environmental and organizational factors affecting HR forecasting.

CHAPTER

4
THE HR FORECASTING

PROCESS

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NEL 81CHAPTER 4 The HR Forecasting Process

// WHAT IS HR FORECASTING?
HR forecasting can be defined as the process of ascertaining the net requirement for
human capital by determining the demand for and supply of human resources now and
in the future. Forecasting is deeply embedded within the organization’s strategy and
structure. Firm strategy and environmental scanning, as discussed in chapters 2 and 3,
are important steps in determining the kinds of activities and behaviours that are critical
to organizational success. Organization design helps to determine how the knowledge,
skills, abilities, and competencies that are necessary to demonstrate the required activi-
ties and behaviours are acquired by the firm (e.g., through career development and
mentoring, training, or external selection). Forecasting works within these boundary
conditions to fulfil the firm’s requirement for human capital.

// THE STRATEGIC IMPORTANCE
OF HR FORECASTING
A great number of important benefits accrue to organizations that take the time to
institute effective HR forecasting processes. Furthermore, the forecasting techniques
employed do not have to be sophisticated to be of value to the firm (see HR Plan-
ning Notebook 4.1 for a discussion of the primary skills necessary for successful HR

HR forecasting
Determining the net
requirement for human
capital by assessing
the demand for and
supply of human
resources now and in
the future

The next four chapters deal with the forecasting aspects of
strategic HR planning. These chapters deal with forecasting
as a process, with particular emphasis on planning for the
anticipated demand for human capital, how that human
capital will be supplied to the firm, and the development
of human capital within the firm. In a survey of over one
hundred and fifty Canadian firms, the Conference Board of
Canada found that the most important long-term HR priori-
ties reported by organizations are (1) developing leaders,
(2) workforce planning, and (3) succession management.
All these activities, including leader development and lead-
ership development relate to the HR planning area.

While it is clear from these results that HR planning
is a top priority, it appears that organizations are not fully
prepared to meet the challenge. The organizations partici-
pating in the survey also indicated that roughly 50 percent
of the firms do not have full-time staff dedicated to work-
force planning, and 68 percent lack confidence in their
practices and metrics that support workforce planning.

Workforce planning in most Canadian organizations
today has a short-term focus (no more than two years),
and tends to plan based on the firm’s immediate needs
or gaps between human capital demand and supply.
These planning activities are based largely on current
headcounts of employees or historical requirements
for employees. Fewer firms employ more strategic HR
planning practices that focus on questions that relate to
the business strategy, and how the firm’s human capital
needs flow from the strategy. These strategy-based forms
of planning take a longer planning perspective, looking
two to five years into the future. As HR planning becomes
more strategic, the focus moves from headcounts to
asking how human capital can be involved in solving
organizational challenges that relate to delivering value
to the customer.

Source: Courtesy of The Conference Board of Canada, 2017,
Workforce!Planning Practices in Canada: Human Resources Trends

and Metrics, 4th ed.

WORKFORCE PLANNING IN CANADA

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Strategic Human Resources Planning NEL82

forecasting).1 In general, forecasting is most beneficial when demand is high for jobs,
in particular for specialized jobs. After all, when the labour market is slack and workers
are readily available, there is less need to plan in advance. However, when the opposite
is true, forecasting can ensure that the necessary human capital is available to the firm,
despite its scarcity in the labour market. A few of the other important advantages of
HR forecasting are discussed below.

REDUCING HR COSTS

Effective HR forecasting focuses on a comparison between the organization’s cur-
rent job-related knowledge, skills, abilities, and other characteristics (KSAOs) that
workers must have to perform successfully in the position and those desired in the

KSAOs
The knowledge, skills,
abilities, and other
characteristics that are
necessary for a person
to perform well in a job.
Also referred to as job
specifications, KSAOs
are derived from job
analysis

HR PLANNING NOTEBOOK 4.1

THE SKILLS NECESSARY FOR EFFECTIVE PLANNING

HR planning takes many forms, and uses a variety of
methods. In many smaller organizations, planning is initi-
ated in the business line, where the line manager looks
to the short-term future to determine employee needs,
and submits a request to HR for the expected number of
new hires needed. The HR department aggregates the
estimates across the organization and puts plans and
practices in place to accommodate those needs. As firms
grow and become more complex, so too does the plan-
ning process, and the planning can become more long
term in its focus.

When forecasting becomes a more involved process,
a number of skills must be brought together to ensure that
effective planning can take place. These skills do not need
to be present in a single person, but must be available to
forecasters either within the HR function, or on a cross-
functional planning team. The following skills have been
proposed as critical to the planning function:

1. Communication skills. Forecasting involves the entire
business, not just a single functional area. Commu-
nication skills are necessary to deal with multiple
departments and stakeholders, and to ensure that
the processes used (both quantitative and qualita-
tive) have gathered as much information as possible.

2. Quantitative skills. As artificial intelligence and the
types of algorithms used to develop forecasts become

more advanced, the need for quantitative skills to
perform basic statistical analyses will likely decrease,
but for now many forecasting methods rely on basic
knowledge of statistical methods. Fortunately, there
are a variety of statistical software packages avail-
able today, and many tutorials, both in class and
online to help users develop the skills to use the
software.

3. Strategic skills. Forecasting is ultimately linked to
the resources that are necessary to implement the
firm’s strategy. HR planners must be able to connect
business challenges and business requirements to
human capital requirements in order to be successful.
Understanding the actions and outcomes that drive
success in the business is critical to the ability to
forecast the human capital necessary to perform
those actions.

4. Process management skills. This skill partners with
communication skills to enable planners to arrive at
a method or combination of methods that will provide
a single, usable forecast. The information and the
people necessary to arrive at a forecast often come
from multiple functional departments within the orga-
nization, and often need to coordinate with external
consultants. Managing the forecasting process itself
can be a sizable task.

Source: Lapide, L. (2003). “Organizing the forecasting department,” The Journal of Business Forecasting, 22(2), pp. 20–21.

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NEL 83CHAPTER 4 The HR Forecasting Process

workforce of the future. This inherent comparison facilitates a proactive, sequential
approach to developing internal workers and is concurrent with activities focused
on obtaining the best external recruits from competitors, universities, and training
programs.2 In this manner, organizations can reduce their HR costs as they take a
long-run planning approach to HR issues. This means that organizations will be
less likely to have to react in a costly last-minute crisis mode to unexpected devel-
opments in the internal or external labour markets. Proper planning will ensure
that any inefficiencies can be avoided as much as possible: consider an HR surplus
situation in which an organization does not have enough work for all its employees
but still has to continue to pay wages and benefits, or, alternatively, in which an
organization faces an HR gap, where an increase in work demands cannot be met
by the existing employment arrangements, and the organization will have to pay
overtime to its current workers.

INCREASING ORGANIZATIONAL FLEXIBILITY
An oft-cited advantage of HR forecasting is that its proactive process increases the
number of viable policy options available to the organization, thereby enhancing flex-
ibility.3 With regard to labour supply considerations, forecasting processes develop
program options that can determine whether it is more advantageous and cost-effective
to retrain or develop current members of the workforce to fill anticipated job openings or
fill these openings with external recruits who already possess the required competencies
and skills. Given that HR forecasting is predicated on trends, assumptions, scenarios,
and various planning time horizons, the process itself encourages the development
of a wide range of possible policy options and programs from which the HR staff can
select. Furthermore, each of the various HR programming options are ranked, subjected
to cost–benefit analyses, and allocated organizational resources after being carefully
examined as part of the HR forecasting process.

Finally, by keeping the level of available human capital in step with opera-
tional requirements, the organization minimizes any H R gaps or surpluses. An
HR gap occurs when the organization has insufficient human capital to meet its
operational needs; conversely, an HR surplus is when the organization has more
human capital than needed. Where an HR gap will require more hiring or training,
the firm would respond to an HR surplus generally through a hiring freeze, attri-
tion, or even lay-offs. Maintaining alignment between the required levels of human
capital and operational requirements gives the firm the human capital resources to
earn greater revenues when it has the opportunity to do so, and also prevents the
firm from having higher costs when revenues dip. When operating costs are able
to vary with revenues, organizations have more operating leverage, which increases
organizational performance.

ENSURING A CLOSE LINKAGE TO THE MACRO BUSINESS
FORECASTING PROCESS
A problem can develop in organizations when the HR planning process is not aligned to
the overall business goals of the organization.4 The implementation of an HR forecasting

HR gap
A shortage of human
capital such that the
organization is unable
to meet its current
or forecasted human
capital requirements
HR surplus
A situation in which the
organization has more
human capital than
it requires in order
to meet its current
or forecasted human
capital requirements

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Strategic Human Resources Planning NEL84

process helps to eliminate the possibility that HR policies will veer away from the overall
operating and production policies of the organization. First, HR forecasting, although
an ongoing process, takes its lead from specific production, market share, profitability,
and operational objectives set by the organization’s top management (see HR Planning
Today 4.1 for an example of how HR planning at Starbucks flows from the broader
business strategy). These objectives have been established through proactive internal
and environmental scans of market and competitor strengths, weaknesses, opportunities,
threats, resources, and policy actions.5

Once these have been established, specific HR forecasting analyses are set in
motion to determine the feasibility of the proposed operational objectives with respect
to time, cost, resource allocation, and other criteria of program success. The HR
analyses are subsequently sent back to top management, and they either confirm the
viability of the original business objectives or indicate that changes (e.g., the alloca-
tion of additional resources) need to be made to enable the objectives to be met. HR
Planning Today 4.2 outlines the experiences of one corporation in aligning its corporate
values with its HR processes.

The business forecasting process, therefore, establishes overall organizational objec-
tives, which are input into the HR forecasting process.6 Management can then determine
whether the explicit objectives, with their associated specific performance parameters,
can be met with the organization’s current HR policies and programs or whether specific
changes have to be instituted, with their associated costs, to achieve the objectives. These
analyses and the subsequent feedback of the HR forecast summaries to senior manage-
ment help to ensure that the top decision makers in the organization (1) are aware of
key HR issues and constraints that might affect organizational plans for success and
(2) ensure that the HR objectives are closely aligned with the organization’s operational
business objectives.7

HR PLANNING TODAY 4.1

STRATEGIC PLANNING AT STARBUCKS

As competition in the specialty coffee industry heats up,
Starbucks has modified its strategy in order to retain its
competitive position. Some of the changes to Starbucks’
strategy include an increased focus on sourcing coffee
beans ethically, on caring for the environment in its
business practices, and on community involvement.
For Starbucks, community involvement means taking
a more active role in the well-being of the communities
in which its stores operate. For example, Starbucks has
committed to an effort to help youth, military veterans,
and family of veterans to find meaningful career paths
by pledging to hire 25 000 veterans and military family

members by 2025, and up to 100 000 young men and
women not currently working or in school by 2020.
Starbucks has also committed to building stores in
low-to-medium income urban markets, and to building
stores using local minority- and women-owned contrac-
tors and vendors. These activities demonstrate how a
company can put its values into action so that they
are connected to strategy, and are clear for customers
and employees to see and understand. By doing so,
Starbucks is demonstrating how HR planning and fore-
casting plays a crucial and strategic role in executing
its social impact initiative.

Sources: Message from Howard Schultz to Starbucks partners: Living our values in uncertain times. January 29, 2017. Starbucks Newsroom,
news.starbucks.com; and Valby, Karen. Starbucks is bringing hope—and profit—to the communities of America’s forgotten. July 31, 2017.
Fastcompany.com.

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NEL 85CHAPTER 4 The HR Forecasting Process

HR PLANNING TODAY 4.2

CUTTING-EDGE CANADIAN HRM: SAPIENT CANADA—ALIGNING CULTURE AND CORE
VALUES WITH KEY HR PROCESSES

Sapient Corporation provides IT strategy and marketing
design consulting services for clients worldwide based
out of 22 offices in Canada, the United States, Europe, and
India. Sapient Canada has 185 staff (and 47 temporary
international “travellers”), and its synergistic HR processes
and operations have helped ensure its consistent place-
ment in “The Top 100 Employers in Canada.”

The company’s corporate core values of “openness,
people growth, leadership, client focus, creativity and
growth” are explicitly incorporated into the selection and
succession processes, with the goal of finding qualified
employees who best fit these values. Furthermore, Sapient
Canada’s people-oriented culture is inclusive and minimizes
hierarchical distinctions as exemplified by the “open table”
office design, with only two offices (no cubicles) in the whole
building, ensuring that all employees, including the man-
aging director and top staff, sit at tables with the rest of
the workforce.

Leadership development programs rely extensively
upon formal mentoring for the top 20 potential employees,
and informal mentoring and buddy systems for new and
other ongoing employees. Feedback is both encouraged
and expected, and all Sapient Canada employees receive
mandatory semi-annual performance assessments, over
and above the regular coaching and counselling activi-
ties demonstrated on a day-to-day basis. These 360° PPG
(people, performance, and growth) performance appraisals
include a self-appraisal component, along with qualitative
and quantitative assessments of performance provided by
a variety of employee and manager-nominated external
assessors. Managers are themselves evaluated on their
effectiveness in developing their personnel, and there are
very real financial and career consequences if they do not

perform the employee PPG review and other HR processes
in a highly competent and timely fashion.

Leaving aside a compensation scheme that pays a
premium over prevailing market rates for top-quality per-
sonnel, other factors that enable successful retention of key
performers include ample opportunities for further education
and learning, organizational support for corporate social
responsibility community improvement initiatives, and a
comprehensive and integrated awards and recognition
program. Approximately every six to eight weeks, Sapient
Canada has a mandatory professional development day and
social activity, during which time employees are instructed
on topics such as work–life balance, developing business
and career plans, and so on. Employees are seconded
or given time away from billable projects in order to join
in community improvement initiatives. A broad range of
awards, from “Rookie of the Year” (for new hires) to the
“Founders Awards,” promotes recognition of exemplary
performance and demonstration of core values.

HR forecasting processes are based upon ongoing,
real-time bottom-up and top-down forecasting processes.
Bottom-up HR forecasting at Sapient Canada is derived
from aggregating the labour demand forecasts of various
business consulting projects and their requirements for
various type of employee skills, knowledge, expertise,
and qualifications. These business plan–driven forecasts
are augmented by top-down HR forecasts predicated on
strategic analysis of business and HR trends, leading to
anticipatory hiring today of personnel with competencies
and attributes that will be required by Sapient’s operations
in future. This multi-tier HR forecasting process operates
in real time with comprehensive evaluations conducted at
least monthly by the HR staff.

Source: Kenneth McBey, Interview of Lou-Ann Paton, Amanda Peticca-Harris, and Brad Simms of Sapient Canada.

ENSURING THAT ORGANIZATIONAL REQUIREMENTS TAKE PRECEDENCE
OVER ISSUES OF RESOURCE CONSTRAINT AND SCARCITY
As we present each step of the HR forecasting process in sequence throughout this
book, it will quickly become evident that the first step in the process is the calculation
of organizational requirements, or demand for human resources. Determining the

Human resources
demand
The organization’s pro-
jected requirement for
human capital

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Strategic Human Resources Planning NEL86

source of human capital—that is, the availability or supply of workers—is done only
once the process of evaluating human capital requirements for current and future time
horizons has been finalized. This sequence is not accidental, and it reinforces the fact
that attainment of desired organizational goals and objectives must take priority over
all issues concerning resource scarcity and other implementation issues.

// THE VALUE OF HUMAN CAPITAL TO THE FIRM
Human capital theory suggests that it takes time for investments in human capital to
produce financial or productivity-based returns to the firm. The reason for this is that
human capital generally comes to the firm in the form of generic human capital, which
over time develops into firm-specific human capital.

GENERIC HUMAN CAPITAL
Generic human capital represents the knowledge, skills, and abilities that are held by
employees and that are useful to the firm. It is called generic human capital because
these types of skills are of equal value to most any company, and so this value can be
priced in the labour market. For example, most firms benefit from the skills of a chartered
accountant, and because these skills are of equal value across almost any company, a
chartered accountant is able to price that value, and to require payment for those skills
at their full value. The ability to determine a market cost for labour limits the amount
of value that the firm can acquire from these skills, since the value that is captured for
the firm through the deployment of that human capital flows almost completely to
the employee. Firm-specific human capital, on the other hand, represents the kind of
knowledge that employees have that benefits the firm, and that requires a deep under-
standing of the firm’s systems, social structure, or customers.

FIRM-SPECIFIC HUMAN CAPITAL
Firm-specific human capital represents the skills that employees have based on their
tacit knowledge and learned from experience in the firm and through mentorship. An
example of firm-specific human capital could be using one’s knowledge of the processes
and people involved in making a change to a data entry screen to cut the time required
to implement the change from one week to one day. Because firm-specific human capital
is valuable to the firm, but cannot be easily transferred across organizations, it is very
difficult for the employee to determine this value in the labour market. Consequently, the
firm is able to retain much of the value of firm-specific human capital, which represents
a potential source of competitive advantage from human capital.

HUMAN CAPITAL STOCK AND FLOWS
Because it takes time for generic human capital to develop into firm-specific human capital,
forecasting must take into account not just the stock of human capital, but also its flow.
Human capital stock refers to the amount of human capital within the firm at any given

Human resources
supply
The source of human
capital to meet demand
requirements, obtained
either internally (current
members of the orga-
nization’s workforce) or
from external agencies

Generic human capital
The competencies,
knowledge, skills, and
abilities that are held
by individual employees
and that are useful to
the firm

Firm-specific human
capital
The competencies,
knowledge, skills, and
abilities that employees
possess based on their
tacit knowledge, and
learned from experience
and through mentorship
in the organization
Human capital stock
The amount of any
specific form of human
capital that is available
to the firm at any given
time

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NEL 87CHAPTER 4 The HR Forecasting Process

time, whereas human capital flow represents how human capital stock changes over time.8
Forecasting human capital requires that planners consider not just how many employees
may be required at a given time (i.e., the stock of human capital), but also whether the
requisite level of firm-specific human capital will be available for the firm to compete (i.e.,
the flow of human capital). Some management scholars suggest that the current skills gap
in North America is largely attributable to the fact that companies have been ignoring the
flow of human capital within their firms.9 HR Planning Today 4.3 discusses an emerging
method that organizations are using to deal with skills gaps relating to highly skilled or
technical human capital requirements.

The consideration of stock and flows will depend on the type of human capital
required. For example, firms that focus on generic human capital through the use of
seasonal or part-time jobs that require few specialized skills and little training may place
more emphasis on the importance of stocks; whereas firms that focus on firm-specific
human capital through the use of jobs that deal with integrating processes or complex
social networks will need to focus on human capital flows. Forecasting tools that assess
human capital requirements based on historical measures such as sales levels are inher-
ently more focused on human capital stocks. Forecasting tools that are dependent on
succession management, and that integrate turnover rates and employee movement such
as promotions, including Markov analysis, are more focused on human capital flows.
We will discuss these forecasting tools in more detail in chapters 5, 6, and 7.

Human capital flow
The change in the
stock of human capital
over time. Factors
that affect the flow of
human capital include
terminations, promo-
tions, lateral move-
ments, and demotions

HR PLANNING TODAY 4.3

FORECASTING JOB REQUIREMENTS VERSUS TASK REQUIREMENTS

Current methods of planning in HR are based on the job;
planners consider how many workers or worker hours
may be required to produce a given level of output, and
an appropriate level of hiring is performed to fill jobs to
accommodate the expected level. However, organizations
are beginning to move away from the job to examine
how to align human capital with specific tasks, even
if it means outsourcing a small part of a job, or a few
tasks from a range of jobs. The implication is that using
the job as the unit of analysis for human capital require-
ments might be becoming redundant. Crowdsourcing
and human capital portals are now available to provide
organizations with access to highly skilled workers to
help solve particular human capital challenges. Talent
platforms such as TopCoder, Tongal, Appirio, Upwork,
and InnoCentive now connect organizations with free-
lance workers who bid to take on specific tasks, or
work collaboratively to solve particular problems. These

organizations help firms gain access to content creators,
web or app developers, data scientists, and communities
of problem solvers in order to create advertisements or to
solve difficult problems. Rather than creating a particular
job with a given set of tasks, organizations can now look
at strategic issues in terms of the actions required to
solve those challenges, and gain access to some of the
best talent in the world to perform many of those actions
through talent platforms.

As organizations move away from full-time employ-
ment, planners must also begin to think less in terms of
the types and numbers of jobs that are required to fulfil
organizational needs to the kinds of skills or competencies
that are required to fulfil strategic organizational chal-
lenges. This will require planners to have a firm under-
standing of how to implement strategy in terms of actions
and the skills necessary to perform those actions, and how
to access those skills in innovative ways.

Source: Adapted from Boudreau, J. “Improving ‘Crowdsourced’ Creativity”. September 25, 2015, linkedin.com; and Boudreau, J. Jesuthasan, R. &
Creelman, D. 2015. Lead the Work: Navigating a World Beyond Employment. Wiley and Sons: Hoboken, NJ.

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Strategic Human Resources Planning NEL88

// KEY HUMAN CAPITAL ANALYSES CONDUCTED
BY HR FORECASTERS
STRATEGIC FORECASTING
Any human capital forecasting exercise should begin with a business problem. That is,
human capital needs flow from strategic business challenges, and so the question of
human capital needs is derived from asking how human capital can be used to solve
a business problem. For example, Walmart is seeking to maintain its leadership posi-
tion in the retail sector amidst the huge transition from in-store to on-line shopping.
One potential solution to keeping costs low while shipping goods to customers is to
show customers what sorts of items will ship easily with and at the same time as their
other purchases. The idea is to streamline costs by helping customers to find and buy
a larger basket of items that will save money and time.10 This business challenge at
Walmart around increasing sales falls directly in line with its strategy as a large-scale
retailer, but it does not involve the types of human capital traditionally expected
to be involved in increasing retail sales. The types of human capital requirements
involved in solving this business challenge would be those relating to data interpre-
tation, supply chain management, and logistics. When viewed from the perspective
of business challenges, it is possible to develop a clear understanding of the types of
human capital that can be considered strategic, and that should therefore be central
to any planning efforts.

In addition to a focus on strategic human capital requirements, workforce planners
must also bear in mind the kinds of human capital needs that flow from the strategy to
the kinds of activities that are necessary to implement the strategy. To aid in this plan-
ning, it can be useful to group required human capital requirements into categories.
A few of these categories are discussed below.11

1. SPECIALIST/TECHNICAL/PROFESSIONAL WORKERS

Workers holding trade qualifications that are in high demand or that require lengthy
preparatory training for attainment of skill competency constitute a key area of focus
for HR forecasting. The news media frequently run stories about business owners who
are unable to fill positions because they cannot find the requisite skills in the appli-
cant pool. Avoiding the supply constraints that arise from skills gaps can be difficult,
especially in specialized skills areas, and so organizations should identify jobs with
specialized skill requirements, and have programs in place to ensure that this strategic
human capital is available when needed. Planning for skills shortages among specialized
jobs can be very challenging. For example, when the Sarbanes-Oxley Act was instituted
in the United States in 2002 as a response to the corporate scandals of the previous
few years, it caught the financial industry by surprise. In order to comply with the
Act, financial institutions that were listed on a U.S. stock exchange were required to
demonstrate a higher level of transparency and managerial responsibility. This created a
large increase in the need for accountants with specialized training in internal auditing,
and an immediate skills gap developed. The shortage of accountants with a specialty
in audit led to a sharp increase in compensation for this job. Because it requires up
to three years to become specialized as an accountant in audit, the skills gap persisted
for a few years until the labour market could respond to the gap, at which time the

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NEL 89CHAPTER 4 The HR Forecasting Process

premium prices being paid in the market for internal audit accountants evaporated,
and compensation levels fell back to a level consistent with similar accounting jobs.

2. EMPLOYMENT EQUITY– DESIGNATED GROUP MEMBERSHIP

Organizations might have strategic reasons for seeking out members of an underrepre-
sented part of their community. Federal and provincial governments in Canada have
enacted employment-equity legislation and guidelines that require organizations to ensure
employment practices are fair and equitable and that the composition of their workforce
reflects the rapidly changing face of Canadian society. Four designated groups require spe-
cial attention with respect to their degree of use or equitable employment in organizations:

1. People of Aboriginal descent
2. Women
3. Persons with disabilities
4. Members of visible minorities

Particular attention must be paid to monitoring members of these designated groups
with respect to organizational opportunities.12 Furthermore, the composition of the
organizational workforce should reflect the underlying characteristics of the society in
which it is embedded, so the supply issue, as it relates to proportional representation
of designated groups in the organization, is a key area for HR forecasting. As organiza-
tions become more conscious of promoting particular values as part of their brand, and
as Canadian society becomes more diverse, forecasting the demand for and supply of
underrepresented groups is becoming an increasingly important activity.

Ra
w

pi
xe

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om

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hu

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rs

to
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.c
om

Designated groups represent an underutilized source of labour.

Designated groups
Groups deemed to
require special atten-
tion due to the per-
sistent disadvantages
they face in the labour
market; the four des-
ignated groups include
people of Aboriginal
descent, women, per-
sons with disabilities,
and members of visible
minorities

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Strategic Human Resources Planning NEL90

3. MANAGERS AND EXECUTIVES

Executives (CEO, president, vice-presidents, and so on) interact with key environmental
stakeholder groups on behalf of the organization and are responsible for setting the
goals for the organization’s future direction. Managers are responsible for coaching,
directing, training and developing, and empowering worker behaviours to achieve the
goals established by the executive group. Although there is no shortage of managers
and executives who can function effectively in relatively benign, predictable, envi-
ronmental situations, researchers believe that organizational leaders who are able to
transform organizational culture and anticipate external change, and who possess the
personal attributes necessary to unify the organization, are very rare in most public- and
private-sector organizational settings.13 For this reason, greater attention must be paid
to identifying leadership talent within the organization. The organization’s survival and
future success depend directly on succession and replacement planning. Succession
management is discussed more thoroughly in Chapter 7.

4. RECRUITS

New entrants can bring insights into how competitors structure and operate their busi-
nesses and may, as well, bring with them the latest trends and practices taught in
universities and specialist training agencies. The relative balance of internal to external
human capital supply is a key factor in the HR forecasting process.

// THE FORECASTING PROCESS
The forecasting process is dependent on many factors, including features that are internal
to the organization, and external factors that influence the firm. However, the forecasting
process in general can be described as following a basic pattern that flows from a macro
perspective to a micro perspective. The macro perspective takes into account general
trends in society and the economy (see HR Planning Notebook 4.2 for a discussion of
planning at the macro level), whereas the micro level focuses more directly on chal-
lenges that are specific to the organization. The planning process often moves from the
macro level to the micro level in the following manner as general organizational needs
become specific departmental requirements:14

1. Determine the staffing needs by skills, skill levels, or jobs. This macro-level
activity begins with a thorough understanding of the organization’s strategy
and environmental scanning in order to determine the relevant pieces of
information and types of analyses that are most suited to what is being
forecast.

2. Perform the analyses to determine the number of required employees. This
involves an assessment of in-house skills and other internal supply charac-
teristics as well as determining the demand requirement that must be met
from external sources. The type of analysis can be qualitative or quantitative,
and the focus of the analysis can range from simple headcounts to strategic
scenario planning. Methods of forecasting the demand for and supply of
human capital will be discussed in chapters 5, 6, and 7.

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NEL 91CHAPTER 4 The HR Forecasting Process

3. Create a budget to determine the costs involved in fulfilling the stated
organizational requirements.

4. Put HR programs and policies into place to ensure that the demand and
supply requirements are met, and track the results. Measures of production,
efficiency, employee performance, or group performance may be used to
assess the results of the forecasting process.15

FORECASTING METHODS
Whether forecasting the requirement for human capital (i.e., demand forecasting),
or the source of that human capital (i.e., supply forecasting), a variety of methods
are available to perform the forecast. Research suggests that firms tend to go through
a cyclical process of gravitating toward more complex forecasting technologies, then
back to simpler ones, and then increasingly complex methods again until a balance
is formed.16 The decision to use more complex forecasting methods is predicated on

Demand forecasting
The process of
determining the orga-
nization’s requirement
for specific forms of
human capital
Supply forecasting
The process of
determining the source
or sources of human
capital to satisfy the
organization’s demand

HR PLANNING NOTEBOOK 4.2

HUMAN CAPITAL FORECASTING AT THE MACRO LEVEL

The Canadian Federal Government regularly updates its
human capital forecasting through the Canadian Occupa-
tional Projection System (COPS). These efforts are partly
used to guide policy around training, skills development,
and education funding in Canada. The forecasting process
begins with estimates of the demand for labour by industry
and job type, and also gathers the sources of supply for the
same types of human capital. The analysis then seeks to
determine the areas of imbalance between the demand for
human capital and its supply. The ultimate objective is to
identify jobs where potential labour market imbalances are
expected to occur over the next decade. Some of the mea-
sures that COPS uses to perform its forecasting include

• Job vacancy rate. This measure provides an
estimate of the level of unoccupied positions and
is calculated as the number of vacant positions
divided by the total labour demand for a job.

• Job openings by skill level. This category divides
job into skill levels ranging between management,
university education, college education, high skill,
and on-the-job training.

• Employment growth projections by industry.

The COPS system takes job information from the
National Occupation Classification, and assesses labour
market conditions using unemployment rate, wages, and
employment as its primary sources of data to forecast the
demand for human capital. To assess the supply of human
capital, COPS uses estimates of the projected number of
job openings (from projections of employment growth)
and new job seekers (that is, students leaving the school
system, and new immigrants) over the next decade, as
well as the replacement of workers due to retirements,
deaths, and emigration.

Between 2015 and 2024, the COPS system projects
that 17 occupations will show signs of labour shortage,
mostly coming from areas that require postsecondary edu-
cation or apprenticeship, and many coming from areas
relating to health, skilled trades, and applied sciences.
COPS projects 18 occupations to show signs of labour
surplus, coming from areas that require a high-school
diploma, or on-the-job training, and that are primarily in
sales and service occupations.

Sources: Government of Canada: Canadian Occupational Projection System, http://occupations.esdc.gc.ca/sppc-cops/[email protected], retrieved
March 2, 2018; and Government of Canada: National Occupation Classification, http://noc.esdc.gc.ca/English/home.aspx, retrieved March 2, 2018.

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Strategic Human Resources Planning NEL92

the availability and quality of data. Given the increase in enterprise resource planning
systems and HR information systems to capture organizational data, more complex
methods of forecasting have become increasingly available. The advent of artificial
intelligence to assist in sorting through large amounts of data will undoubtedly have
future consequences on the methods of forecasting that will be used in the next decade.
For now, popular methods of forecasting fall into the following categories:

1. Survey the business line for their anticipated needs. This method includes subjec-
tive decisions such as personal rules of thumb (e.g., a line manager may have
a seasonal forecast rule of thumb that sales staff requirements double in the
summer months).

2. Norm-based rules. This is a very common method of forecasting in which
existing assumptions based on historical data are used to create ratios of
production or sales amounts to human capital needs. This category includes
trend analysis, which will be discussed more in Chapter 5.

3. Time series– and regression-based models. These types of models are largely based
on objective data such as sales levels, marketing efforts, and seasonality or
historical demand, and are able to incorporate more information than norm-
based rules in determining the forecast.

4. Mathematical and econometric models. While these types of models can be
relatively simple and straightforward, they can also become quite complex (see
HR Planning Notebook 4.3 for more discussion around the use of simple versus

HR PLANNING NOTEBOOK 4.3

ARE COMPLEX FORECASTING MODELS BETTER THAN SIMPLE ONES?

Complex forecasting models are based on the availability
of large amounts of data, and use sophisticated model-
ling techniques such as mathematical and econometric
models. Less technologically sophisticated models, on the
other hand, are based on qualitative methods, or norm-
based rules. While the use of complex models is mostly
limited to large organizations that possess both the data
and the expertise to develop such models, does this mean
that smaller organizations are missing out on the best
planning methods, or that larger organizations should limit
their forecasting methods to complex models? According
to the research, both types of models have their place in
the forecasting repertoire.

Complex models tend to be used most when the envi-
ronment can be characterized as fairly low in uncertainty.
In highly uncertain environments, less sophisticated and
more qualitative models are more frequently put to use.
Uncertain environments are those that are perceived to be

more complex in terms of greater variety in the types of
labour involved, the presence of more government regula-
tions, or the complexity of relationships with customers
and suppliers. Uncertain environments are also perceived
to be more dynamic (less stable) in terms of the speed at
which relevant environmental factors change over time.
The many environmental changes that have impacted the
way Netflix delivers its value proposition of providing easy
access to quality programming to its customers over the
past 20 years is an example of a dynamic environment.

When deciding on the type of forecasting model to
use, planners should gauge their decision on the extent
to which the environment is complex versus simple, and
dynamic versus stable. Environments that tend toward
simplicity and stability lend themselves well to complex
forecasting models. Environments that tend to be more
dynamic and complex lend themselves well to less sophis-
ticated and more qualitative forecasting methods.

Source: Adapted from Stone, T., & Fiorito, J. (1986). “A perceived uncertainty model of human resource forecasting technique use.” Academy of
Management Review, 11(3), pp. 635–642.

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NEL 93CHAPTER 4 The HR Forecasting Process

complex forecasting models). Examples of models in this category include
Markov models, simulations, and structural equation modelling. These models
are highly data driven, and can incorporate a large number of assumptions and
variables. This allows for very sophisticated modelling, but requires a relatively
high degree of expertise in constructing the analysis, and is dependent on the
quality of the data that are used in the model. A primary benefit of artificial
intelligence such as IBM’s Watson is that complex models such as these will
eventually become easier to construct so that little or no specialized mathemat-
ical or statistical knowledge will be necessary to perform these types of analyses.

5. Qualitative models. This category of models is based on human judgment, and
includes methods such as the Delphi Technique, focus groups, Nominal Group
Technique, and scenario planning. A primary benefit to qualitative models is
that human judgment may be best suited when a high degree of uncertainty
exists or if the data or expertise is not available to construct a quantitative
model. For example, the automobile industry and its movement toward electric-
powered vehicles and autonomous vehicles carries many questions around how
automobile manufacturers should focus their human capital. Should research
and design resources be moved away from gasoline and diesel-powered vehicles
and toward these newer technologies and, if so, how much should be invested
in these newer technologies? These decisions are based on many factors such
as management preferences, consumer demand, government involvement in
building new infrastructure to accommodate new technology, and broader eco-
nomic trends. Such decisions are probably best made using qualitative methods.

The analysis of these types of models will be discussed in more detail in chapters 5
and 6. HR Planning Notebook 4.4 discusses how these forecasting model types fall into
three basic categories of analysis.

HR PLANNING NOTEBOOK 4.4

CATEGORIZING FORECASTING MODELS

Forecasting models like the general types discussed ear-
lier in this chapter can be categorized into three types of
analytical models: (1) time-series models, (2) cause-and-
effect models, and (3) judgmental models. Time-series
models use historical data in order to extrapolate and
extend trends into the future. These models can be simple
to use and are typically confined to short-term forecasting.
An example of a time-series model is trend forecasting.
Cause-and-effect models assume that an ongoing rela-
tionship exists between one or more causal or “inde-
pendent” variables that produce change in the target or
“dependent” variable. An example is the significant nega-
tive relationship existing between market rate of interest

(cost of capital) and the demand for construction workers.
Cause-and-effect models are used for short-, medium-,
and long-term HR forecasting; forecasting models such
as regression, and other mathematical and econometric
models are forms of cause-and-effect models. Finally,
judgmental models are used for new ventures, situations
in which past data do not exist or are unreliable, in situ-
ations that are highly novel or that involve a great deal of
uncertainty, or when the forecasting period extends into
the distant future. They rely on the subjective judgments
of experts to derive the forecasts, and include basic survey
and norm-based models to more structured models such
as the Delphi technique.

Source: Adapted from Jain, C. 2002. “Benchmarking Forecasting Models,” The Journal of Business Forecasting Methods and Systems, Vol. 21,
No. 3 (Fall), pp. 18–20.

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Strategic Human Resources Planning NEL94

Having discussed the basic forecasting process, we now examine the effects of
environmental uncertainty and of planning time horizons on HR forecasting.

// ENVIRONMENTAL AND ORGANIZATIONAL
FACTORS AFFECTING HR FORECASTING
HR FORECASTING TIME HORIZONS
As environmental and organizational factors increase the level of uncertainty for HR
forecasters, flexibility in the programs they devise to balance human capital demand and
supply is necessary. The key point to consider from an analysis of environmental and
organizational factors is that uncertainty decreases confidence in the ability to predict
the future accurately and hence reduces the HR forecasting time horizon.17 Although
there are variations among organizations with respect to how they define their specific
time parameters, the typical HR forecasting time horizons are as follows:18

1. Current forecast: The current forecast is the one being used to meet the immediate
operational needs of the organization. The associated time frame is up to the
end of the current operating cycle, or a maximum of one year into the future.

2. Short-run forecast: The short-run forecast extends forward from the current
forecast and states the HR requirements for the next one- to two-year period
beyond the current operational requirements.

3. Medium-run forecast: Most organizations define the medium-run forecast as
the one that identifies requirements for two to five years into the future.

4. Long-run forecast: Due to uncertainty and the significant number and types of
changes that can affect the organization’s operations, the long-run forecast is
by necessity extremely flexible and is a statement of probable requirements
given a set of current assumptions. The typical long-run forecast extends five
or more years ahead of the current operational period.19

The outcome of forecasts derived from these four time horizons leads to predic-
tions and projections. A prediction is a single numerical estimate of HR requirements
associated with a specific time horizon and set of assumptions, whereas a projection
incorporates several HR estimates based on a variety of assumptions.20 The variance
of the predictions around the average prediction forms an envelope within which the
current set of assumptions are likely to be valid. In other words, an envelope describes
the range of plausible forecast values for an existing set of assumptions. Figure 4.1
illustrates an envelope around the forecast of the number of employees required to
build engines in a manufacturing facility, where the blue line represents the average of
all predictions, and the shadowed band immediately above and below the line indicates
the values within which most predictions fall. A common envelope range is 95 percent,
which means that the shadowed band includes 95 percent of all expected values. An
interpretation of Figure 4.1 could be that when the facility needs to produce 100 engines,
it will likely require somewhere between 45 and 53 employees (the points at which the
lower and upper sections of the shadowed band would meet the y-axis), given the current
set of assumptions. The use of a combination of predictions and projections provides
the necessary forecasting flexibility required to cope with the uncertainty and change
associated with the environmental and organizational factors described previously.

Prediction
A single numerical
estimate of HR require-
ments associated with
a specific time horizon
and set of assumptions
Projection
Several HR estimates
based on a variety of
assumptions
Envelope
The range of plausible
values of a prediction
based on a given set of
assumptions

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NEL 95CHAPTER 4 The HR Forecasting Process

When changes occur that fall outside the set of assumptions that led to a particular
forecast, the current prediction envelope cannot be relied upon. HR forecasters therefore
devise a set of alternative scenarios, each with its own set of assumptions and program
details associated with HR functions such as training and development, staffing (adver-
tisement, recruiting, and selection), and succession or replacement planning.21 Naturally,
organizations must also conduct contingency planning to have HR policy responses
ready if substantive unanticipated changes occur. Contingency plans are brought into
action when such severe changes to organizational or environmental factors completely
negate the usefulness of the existing HR forecasting predictions or projections (e.g., a
substantial drop in consumer demand occurs due to adverse public relations, as was
seen in the Classic Coke and Tylenol cases).

Scenarios
Proposed sequence of
events with their own
set of assumptions and
associated program
details
Contingency plans
Plans to be imple-
mented when severe,
unanticipated changes
to organizational or
environmental factors
completely negate
the usefulness of
the existing HR fore-
casting predictions or
projections

Average and envelope of employees required for engine production

0

60

70

80

90

100

30

40

50

10

20

0
100 200 300

Engines

Em
pl

oy
ee

s

400 500

FIGURE 4.1

PROJECTED AVERAGE AND ENVELOPE OF EMPLOYEES REQUIRED FOR
ENGINE PRODUCTION

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Strategic Human Resources Planning NEL96

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Some groups, like tradespeople, are in high demand.

HR PLANNING TODAY 4.4

PLANNING IN THE HEALTH SECTOR

Many experts agree that demands for workers in the
health care sector will increase and there are not enough
workers to fill these positions. Fraser Health, based in
British Columbia, with 22 000 employees providing mental
health care, and community and home care to a population
of 1.6 million people, started noticing this skill shortage
years ago, when key positions went unfilled. For example,
although there were only 250 nursing positions unfilled,
Fraser Health forecast that within five years, it would need
over 2000 nurses. The organization identified several key
factors that affected the demand for and supply of health
sector workers.

Research showed that the population served by
Fraser Health would increase by nearly 10 percent and
that the proportion of people over the age of 65 would
increase by 20 percent. Analyses revealed that Fraser
Health was experiencing very high turnover of its younger
generation. Furthermore, about two-thirds of its worker
force were baby boomers, and therefore this organization
could predict large losses of workers due to retirements
and disability leaves. Among occupational groups, nurses

tended to leave positions in emergency and intensive care
for jobs where less physical work and no graveyard shifts
were required.

Based on these forecasts, Fraser Health created a
larger recruitment department, and expanded recruit-
ment efforts to the United Kingdom, New Zealand, and
Australia. The organization also trained recruiters in
current recruitment methods using Facebook, data
mining, and online advertising. The HRIS system was
upgraded to process applications more efficiently. Man-
agers also looked at retention and established new
programs, such as employee recognition and awards, to
encourage commitment to the organization. To reduce
absences due to on-the-job injuries, they installed new
equipment. The organization worked with governments
to increase the supply of health care workers by adding
nearly 600 new places in educational programs for
pharmacists, nurses, and occupational therapists. This
effort to forecast using both macro and micro per-
spectives has now spread to several other hospitals
in British Columbia.

Sources: Soberg, A., and Bennington, A. “Workforce Planning: Implications for Health Care in Canada and Elsewhere,” People and Strategy, 32, 3,
2009, 26–32; and http://www.fraserhealth.ca/about_us/quick-facts, retrieved November 2, 2014.

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RECONCILING NET HR
REQUIREMENTS
The next two chapters deal with ascer-
taining HR demand requirements
and HR supply. Once the demand
for human capital has been forecast,
it is compared to the forecast of the
required supply of human capital.
A gap, or shortfall, in the supply of
human capital must be addressed
either through internal movement of
human capital, external hiring, or a
combination of both activities. A sur-
plus in the supply of human capital
can be addressed through a number of
HR policies. HR Planning Today 4.4
portrays one organization in British
Columbia that used a variety of
methods to increase its supply of
external and internal candidates.

INSTITUTE HR PROGRAMS
AND POLICIES
The net HR requirement is the gap or
surplus that results from the forecasting exercise. As mentioned earlier in this chapter,
an HR gap (shortage) can be addressed through recruitment efforts, retention efforts,
or an increase in temporary or contract workers. An HR surplus is a condition in which
the organization needs to shed human capital. Rather than instituting layoffs or down-
sizing to deal with an HR surplus, the HR function should first consider less damaging
methods whenever possible. These methods include job sharing, redeploying human
capital to other areas of the firm, or a hiring freeze, where the process of attrition
through voluntary terminations, or a combination of these policies is used to achieve
the necessary reduction in the size of the workforce.

Job sharing
When two or more
employees perform the
duties of one full-time
position, each sharing
the work activities on a
part-time basis
Attrition
The process of
reducing an HR surplus
by allowing the size
of the workforce to
decline naturally from
the normal pattern of
losses associated with
retirements, deaths,
and voluntary turnover

Some companies respond to a labour surplus by reducing
shift work.

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// SUMMARY
This chapter has introduced the process of HR forecasting, and discussed its strategic
importance to the firm. The advantages of instituting effective forecasting procedures
include reducing the costs of HR, increasing the flexibility of the organization, ensuring
a close link to the process of business forecasting, and ensuring that the requirements of
the organization take precedence over other specific issues. HR Planning Notebook 4.5
provides more summary discussion around how organizations may fine-tune their HR
forecasting models.

NEL 97CHAPTER 4 The HR Forecasting Process

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98 NELStrategic Human Resources Planning

The transfer of human capital from generic to firm-specific human capital shows
how employees can be a source of competitive advantage to the firm. It is important
to incorporate the development of firm-specific human capital into HR planning, and
forecasting is the point where this planning begins. The concept of human capital stocks
and flows was introduced in order to demonstrate that forecasting methods must incor-
porate models that assess not just how much human capital is required, but how human
capital moves into and out of jobs. Some job groups—executives or specialist/technical
employee groups, especially those with hot and critical skills, for example—attract special
attention in the HR demand and supply reconciliation process.

The general forecasting process was introduced, along with the categories of fore-
casting methods, and the factors that impact forecasts. These concepts will be discussed
in more detail in chapters 5 and 6. Finally, we discussed the policy implications of
reconciling HR demand and supply, ending up with either an HR shortage or an HR
surplus, and the various programs that may be instituted by organizations to address
these varying situations.

HR PLANNING NOTEBOOK 4.5

TIPS ON TUNING UP YOUR HR FORECASTING MODELS

HR forecasting models attempt to align an organization’s
human capital with strategic business direction by projecting
future demand and supply requirements. By implementing
a systematic process of analyzing current workforce and
identifying talent gaps between desired present and future
states, programs can be devised to attain these desired
future states. However logical and straightforward this
appears conceptually, there are a variety of compounding
issues that can thwart the actual usage and comprehension
of HR forecasting models in everyday life.

First, a key problem for HR forecasting is the dilemma
between desiring simple, easy-to-use HR processes that
are readily understood by a variety of organizational deci-
sion makers and the reality that a multitude of individual,
organizational, and environmental factors significantly
impact human resources supply and demand. These vari-
ables compete for consideration and incorporation into the
modelling process. Remember the principle of parsimony,
which dictates that additional causal factors should be
incorporated into a forecasting model only if they make a
significant marginal increase to prediction power.

Second, the issue of data collection time intervals
should be considered when evaluating your HR forecasting
model. Time lags in data collection lead to discrepancies
between HR forecasts and actual requirements for human

capital. These discrepancies are less likely to occur if the
collection frequency in a time-series analysis is increased.
Australian researchers found that the utility of a model
forecasting demand for emergency room employees
increased when data collection was changed from monthly
to daily or hourly observations.

Third, researchers investigating HR forecasting for the
information security industry found that frequent feedback
of relevant forecasting information helped reduce the prob-
lems caused by time lags between separate forecasting of
HR demand and HR supply models. Causal factors for HR
demand were most strongly related to size and growth of
the business sector and its operational capability, while
key causal factors related to HR supply were demand for
specific occupational training resulting from the perceived
attractiveness of certain types of employment.

Finally, the whole concept of HR forecasting may
seem daunting to many small enterprises, but successful
HR forecasting models don’t have to be comprehensive or
expensive, just systematic and sustained. Try segmenting
jobs into three categories—strategic, core, and noncore—
as a starting point for HR strategic planning. Ensure that
analyses are both qualitative and quantitative in nature,
and combine data from interviews from business leaders
with data on worker performance and potential.

Sources: Adapted from R. Champion, L. Kinsman, et al., “Forecasting Emergency Department Presentations,” Australian Health Review, 31, 1
(February 2007); S. Park, S. Lee, et al., “A Dynamic Manpower Forecasting Model for the Information Security Industry,” Industrial Management &
Data Systems, 108, 3 (2008), pp. 368–384; and C. Hirschman, “Putting Forecasting in Focus,” HR Magazine, 52, 3 (March 2007), pp. 44–50.

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99CHAPTER 4 The HR Forecasting Process NEL

KEY TERMS
attrition p. 97
contingency plans p. 95
demand forecasting p. 91
designated groups p. 89
envelope p. 94
firm-specific human capital p. 86
generic human capital p. 86
HR forecasting p. 81
HR gap p. 83
HR surplus p. 83
human capital flow p. 87
human capital stock p. 86
human resources demand p. 85
human resources supply p. 86
job sharing p. 97
KSAOs p. 82
prediction p. 94
projection p. 94
scenarios p. 95
supply forecasting p. 91

DISCUSSION QUESTIONS
1. If you are reading this discussion question, you are probably taking a course at a

university or community college. In groups, discuss some ways that you might be
able to forecast the demand for, and supply of, business management professors.
What sources would you use and why?

2. The chapter starts with a discussion of the labour supply/demand mismatch and
suggests that the government needs to become more actively involved in influencing
the supply of the types of workers that employers need. However, others suggest that
employers need to develop programs to address shortages. What can an employer
do to ensure that it has the skills sets that it needs?

3. List all the ways that an organization can deal with a surplus of employees. Discuss
the advantages and limitations of each option.

EXERCISE
Why is strategic HR planning important to organizations? Describe the potential
negative outcomes if (1) a hospital does not have enough nurses, (2) a university
does not have enough professors, (3) Best Buy does not have enough salespersons
in stores.

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100 NELStrategic Human Resources Planning

CASE STUDY FORECASTING FOR HOME SUPPORT WORKERS

This case outlines the efforts of one Canadian planning agency to predict the
demand for and supply of home care workers. Home support workers (HSWs) are
those caregivers who provide personal care, and do light housekeeping and meal
preparation for people in their home who are no longer able to do so themselves.
Approximately 1.2 million people in Canada employ home care workers, and
the demand for these workers will grow. Let us look at the factors that influence
the demand for this occupational group.

The most important factor is that the majority of those needing HSWs are
over 65 years of age, and this group is one of the fastest growing demographics in
Canada. Another factor is cultural: more and more elderly people wish to remain
in their own homes. Health care policy agrees with this “aging in place” philosophy,
mainly because it is cheaper to keep people in their residence than to place them in
an institution. Demand for HSWs is also increasing because of changes in family
structures. Children (mainly daughters) used to provide the services needed for an
aging parent. However, most women now work outside the home. People are also
having fewer children and these children are likely to have jobs in different cities
than the one in which they were raised. Because of these factors, demand for HSWs
is expected to double over the next 30 years.

What about the supply of HSWs? There are many factors that influence people
to choose to become a HSW. One motivation is the opportunity to serve in a
meaningful way, to make a difference in a person’s life. However, there are many
reasons that people choose not to become HSWs or choose to leave the profession.
The compensation is low and not at parity with the same type of worker employed
in a hospital, for example. Benefits also tend not to be equal. Working conditions
are often difficult, with workers being subjected to aggressive clients (with mental
deterioration), occupational injuries related to heavy lifting, and unsafe conditions
in the home (pets, smoking, and lack of cleanliness). Also many of the caregivers
are of a different race than their clients, and they report experiencing harassment,
racism, and discrimination. These factors influence the attraction and retention
of HSWs.

Sources: Keefe, J.M., Knight, L., Martin-Matthews, A., and Legare, J. 2011, “Key issues in human
resource planning for home support workers in Canada,” Work, 40, 2011, pp. 21–28; http://www.cdn-
homecare.ca/media.php?mid=2798, retrieved October 29, 2014; and http://www.cdnhomecare.ca/media
.php?mid=2799, retrieved October 29, 2014.

QUESTION
List all the reasons that demand for healthcare workers will increase, and the rea-
sons that supply will decrease. What can governments do to increase the supply?
What can employers do?

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101CHAPTER 4 The HR Forecasting Process NEL

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Business Strategy.” Human Resource Planning, Vol. 16, No. 2: 1–16;
Walker, J.W. 1980. Human Resource Planning. New York: McGraw-Hill.

19. Ibid.
20. Burack, E.J., and N.J. Mathys. 1996. Human Resource Planning: A Pragmatic

Approach to Manpower Staffing and Development (3rd ed.). Northbrook, IL:
Brace Park.

21. Fink, A., B. Marr, A. Siebe, and J. Kuhle. 2005. “The Future Scorecard:
Combining External and Internal Scenarios to Create Strategic Foresight.”
Management Decision, Vol. 43, No. 3: 360–381; Millett, S., and S. Zelman.
2005. “Scenario Analysis and a Logic Model of Public Education in Ohio.”
Strategy & Leadership, Vol. 33, No. 2: 33–41; Van Der Heihden, K. 2000.
“Scenarios and Forecasting: Two Perspectives.” Technological Forecasting and
Social Change, Vol. 65, No. 31: 36; Mason, D.H. 1994. “Scenario-based
Planning: Decision Model for the Learning Organization.” Planning Review:
March/April 1994: 6–11.

04_ch04.indd 102 7/31/18 8:34 PM

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NEL

CHAPTER

5

CHAPTER LEARNING OUTCOMES
AFTER READING THIS CHAPTER, YOU SHOULD BE ABLE TO:

• Understand the importance of demand forecasting in the HR planning
process.

• Recognize the linkages between the HR plan, labour demand forecasting
techniques, and the subsequent supply stage.

• Compare and contrast the advantages and disadvantages of various demand
forecasting techniques, including quantitative, qualitative, and blended
techniques.

DETERMINING HR DEMAND

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NEL104 Strategic Human Resources Planning

// FORECASTING DEMAND
HR demand refers to the firm’s future need for human capital, the types of jobs, and
the number of positions that must be filled for the firm to implement its strategy. The
demand for human capital is determined by the strategic and operational requirements
of the firm or business unit. This means that understanding the demand for talent
begins with the firm’s strategy, and flows from the value-generating activities of the firm.
A systems perspective (see Chapter 9 for more information about a systems view)
suggests that in order to determine the demand for any job, it is first necessary to
understand how that job fits into the needs of the organization, and how those job

Estimates of the demand for labour in Canada have
become increasingly uncertain over the past few years,
primarily due to conflicting forces affecting the economy.
On one hand, as baby boomers retire, there has been the
expectation of a large increase in the demand for labour.
By the year 2030, when the youngest baby boomers
are expected to reach the age of 65, it is expected that
between 22 percent and 24 percent of Canadians will be
65 years of age or older. However, not all baby boomers
are choosing to retire at age 65. In 1997 a 50-year-old
Canadian worker was expected to work another 13 years;
by 2008 a 50-year-old worker was expected to work for
another 16 years. Clearly, Canadians are remaining in the
workforce longer. This increased participation has been
attributed to factors including longer life expectancy,
better health in older age, lower savings levels, and higher
educational attainment. While the number of Canadians
approaching retirement age is increasing dramatically, the
rate of retirement might be slowing the resulting expected
increase in demand for labour.

On the other hand, recent forecasts of the expected
impact of workforce automation has produced dramatic
estimates of the expected reduction in workforce partici-
pation due to automation. Some estimates of the impact
of automation on the Canadian labour force suggest that
almost 50 percent of Canadian jobs are at a high risk of
being affected by automation in the next two decades.
Other, more temperate estimates, suggest that the types
of jobs in Canada that are at a high risk of automation
account for less than 2 percent of employment. With the
high degree of uncertainty around the future impact of

automation on the Canadian workforce, long-term fore-
casting becomes much more difficult.

The other primary forces contributing to uncertainty
around the future labour demand in Canada are the shifts
to self-employment and the sharing economy. The sharing
economy refers to the services that are brought together
through modern technology to provide services like
accommodations for guests in people’s homes (such as
Airbnb), transportation services for riders using privately
owned vehicles (such as Uber), restaurant and grocery
delivery services (such as Skip the Dishes), and crowd-
funding platforms (such as GoFundMe). These types of
work arrangements can be difficult to assess in terms of
labour participation, and the impact of these services over
the long term is uncertain due to shifts in technology and
government regulations.

The combination of these factors contribute to a level
of uncertainty that is very difficult to forecast using tradi-
tional quantitative modelling methods. Long-term forecasts
in this type of environment will require more qualitative
methods and simulations that permit exploring multiple
scenarios.

Sources: Statistics Canada (2014-09-17). “Population
projections: Canada, the provinces and territories, 2013 to 2063.”

http://www.statcan.gc.ca/daily-quotidien/140917/dq140917a-eng.htm;

Carriere, Y., & Galarneau, D. (2016-03-03). “How many years to
retirement?” Statistics Canada. http://www.statcan.gc.ca/pub/

75-006-x/2012001/article/11750-eng.htm; and

Oschinski, M., & Wyonch, R. (March, 2017). “Future Shock? The
impact of automation on Canada’s labour market.” C.D. Howe Institute

Commentary #472.

INCREASE IN UNCERTAINTY AROUND THE DEMAND FOR LABOUR IN CANADA

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NEL 105CHAPTER 5 Determining HR Demand

requirements interact with other jobs within the firm. Therefore, the demand ques-
tion ultimately begins with a clear understanding of how the firm brings value to the
customer, and an estimate of the extent to which the market will want to consume the
firm’s products or services.

For example, as auto companies like Ford, GM, BMW, and Mercedes bring electric
vehicles to the market, they might ask themselves what proportion of their total auto
sales will be expected to come from electric vehicles over the next 10 years. The answer
to such a question will certainly impact the technologies in which these companies will
be investing, the kinds of materials they will be using, the methods of manufacturing
they will employ, and the employees required to design and manufacture these vehicles.
Given the high degree of uncertainty around the future availability of charging stations
or other infrastructure necessary to make electric vehicles more convenient to use, and
of the kinds of product attributes that will make consumers want to buy electric vehicles,
the answer to this demand question is potentially complicated and error prone.

Consider on the other hand a company in Canada’s garment industry, such as
Canada Goose. As manufacturer of the well-known Canada Goose line of winter coats
and parkas, the demand for labour at Canada Goose is probably tied fairly closely to
sales of its products. While some styles will always be more fashionable than others,
forecasting the demand for labour at Canada Goose over the next 10 years is prob-
ably more straightforward than at an electric car manufacturing facility. Because of the
variety in the complexity and levels of uncertainty in forecasting the demand for labour,
there exist multiple forecasting methods. These methods can be divided into two main
categories: quantitative methods and qualitative methods. The two main factors that
determine whether a quantitative model or qualitative model is a better choice are the
degree of uncertainty involved in the demand forecast, and the volume and complexity
of the data that are available to assist in creating the demand forecast.

CERTAINTY IN FORECASTING
Some quantitative models are based on what is known about existing relationships between
a level of consumer demand or production, where a forecast already exists, and human
capital demand. For example, a large furniture manufacturing company that produces
a particular type of reclining chair probably knows its market quite well. It understands
who its competitors are, how large a share of the market for recliners it holds, and con-
sequently how many recliners it expects to sell over the next six months. The company
would easily be able to measure the number of employees and hours required to build
each chair, and so calculating the demand for employees over the next six-month period
is simply based on a known forecast of customer demand. In this case, the demand for
recliner chairs is fairly stable, because the market for recliner chairs is fairly stable. There
exists a comparatively high degree of certainty in the market, and so a simple model based
on an existing forecast provides an effective model for assessing the demand for labour.

VOLUME AND COMPLEXITY OF AVAILABLE DATA
While no forecast is ever perfectly accurate, it may be possible to improve the accuracy
of forecasting by including more factors that contribute to changes in demand. For
example, customer demand for some products may be highly seasonal, and so produc-
tion and consequently the demand for labour will change seasonally. Rather than basing

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NEL106 Strategic Human Resources Planning

demand forecasts on total sales per year, labour demand forecasts can be produced that
follow product sales more closely when the seasonality of sales is included. In this case
the demand for labour is based on product demand, but also includes data that relate
to when that demand ebbs and peaks.

Organizations interact with their environments. Because the environment (cus-
tomers, competitors, the economy etc.) is always changing, the complete set of factors
that predict the demand for a particular job, set of jobs, or set of tasks may never be
known. However, by observing how the demand for labour changes, theorizing what
might influence changes in demand, and collecting data based on theory and obser-
vations, it may be possible to increase the consistency of forecasts. This is what the
forecasters at OPG did to assess the factors that influence the demand for engineering
technicians in the case at the end of this chapter. However, this increase in consistency
comes at the price of collecting data over longer periods of time and collecting data
from a wider variety of sources.

In general, quantitative models are better when forecasting demand in stable markets
when there is a high degree of certainty in the relationship between the demand for
labour and the indicators of that demand. As the volume and complexity of data that
are available increase, quantitative models can deal with higher levels of uncertainty,
but when uncertainty becomes very high, as in the case for something like the market
for electric vehicles over the next three years, qualitative models become preferable.
HR Planning Notebook 5.4, found toward the end of the chapter, summarizes the types
of data used for quantitative and qualitative models, and the resulting outcomes from
each model type.

// QUANTITATIVE METHODS
TREND/RATIO ANALYSIS
Trend analysis is a general term for any type of quantitative approach that attempts to
forecast future human capital needs by extrapolating from historical changes in one or
more organizational indices. A basic form of trend analysis could be plotting previous
levels of employment to determine future needs. This method uses prior employment
numbers for a job as the organizational index, and assumes that the future will be quite
similar to the past because the inferences that are being made about future employee
requirements are based on observations of actual past needs. Trend analysis can be used
to spot how changes in other attributes such as sales, inventory levels, revenues etc.,
might correspond with changes in employee requirements. Figure 5.1 demonstrates
how prior knowledge of employee numbers can be used in a trend analysis to predict
future requirements.

Ratio analysis involves examining the relationship between an operational index
and the demand for labour (as reflected by the number of employees in the workforce)
and is a relatively straightforward quantitative demand forecasting technique commonly
used by many organizations.1 For example, an organization may choose to look at the
ratio of sales to employees. Although sales level is probably the most common index used
by organizations, other operational indices include (1) the number of units produced,
(2) the number of clients serviced, and (3) the production (i.e., direct labour) hours.
Similarly, although the relationship between the operational index and workforce size
(number of employees) can be calculated for the entire organization, as well as for the

Trend analysis
A forecasting method
that extrapolates from
historical trends

Ratio analysis
A quantitative method of
projecting HR demand
by analyzing the his-
torical relationship
between an operational
index and the number
of employees required

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NEL 107CHAPTER 5 Determining HR Demand

FIGURE 5.1

USING TREND ANALYSIS TO PREDICT FUTURE REQUIREMENTS

department or operational subunit, some organizations use ratio analysis to ascertain
demand requirements for (1) direct labour and (2) indirect labour (e.g., HR staff). HR
Planning Notebook 5.1 shows an example of ratio analysis.

There are five steps to conducting an effective ratio analysis.

1. SELECT THE APPROPRIATE BUSINESS/OPERATIONAL INDEX

The HR forecaster must select a readily available operational index, such as sales level,
that is (1) known to have a direct influence on the organizational demand for labour and
(2) subjected to future forecasting as a result of the normal business planning process.

2. TRACK THE OPERATIONAL INDEX OVER TIME

Once the index has been selected, it is necessary
to go back in time for at least the four or five most
recent years, but preferably for a decade or more,
to record the quantitative or numerical levels of the
index over time.

3. TRACK THE WORKFORCE SIZE OVER TIME

Record the historical figures of the total number of
employees, or, alternatively, the amount of direct
and indirect labour (see above) for exactly the same
period used for the operational index in step 2. By estimating output, managers can predict labour inputs that are needed.

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NEL108 Strategic Human Resources Planning

4. CALCULATE THE AVERAGE RATIO OF THE OPERATIONAL INDEX
TO THE WORKFORCE SIZE

Obtain the employee requirement ratio by dividing the level of sales for each year of
historical data by the number of employees required to produce that year’s level of
sales. This ratio is calculated for each year over the period of analysis so that an average
ratio describing the relationship between the two variables over time can be determined.

5. CALCULATE THE FORECASTED DEMAND FOR LABOUR

Divide the annual forecast for the operational index by the average employee require-
ment ratio for each future year to arrive at forecasted annual demand for labour. For
example, obtain future sales forecast figures for the next five years. For each of the
years, divide the level of sales by the average employee requirement ratio to obtain the
forecasted numerical demand for labour for each future year.

TIME SERIES MODELS
Times series models use past data to predict future demand. They can range from very
simple to highly complex. For example, a simple time series model might use the value
from the last season as the estimate. If trying to forecast the number of employee
hours required to work in a retail store during December, the HR planner might use
last December’s total sales, or a ratio of sales to total hours worked as an estimate for
this year. The ratio analysis in Planning Notebook 5.1 is a form of time series design
that uses the data from the current year (period) to predict next year’s demand. Other
forms of time series designs use more information from previous years; for example,
a simple moving average may use the average values for actual demand data over the

HR PLANNING NOTEBOOK 5.1

YEAR
OPERATIONAL INDEX

SALES ($ THOUSANDS)
NUMBER OF
EMPLOYEES

EMPLOYEE REQUIREMENT
RATIO (SALES PER EMPLOYEE)

2014 2,800 155 18.06
2015 3,050 171 17.83
2016 3,195 166 19.25
2017 3,300a 177 18.64
2018 3,500a 188b 18.64c

2019 3,600a 193b 18.64c

2020 3,850a 207b 18.64c

RATIO ANALYSIS: PUSLINCH POTTERY

a The initial forecast is developed based on 2017 actual data. We are forecasting labour demand for 2018, 2019, and 2020, and therefore sales
figures for those years are future estimates.

b Employee numbers are historical, except for the figures for 2018, 2019, and 2020, which are our future HR demand forecasts.
c The index used to calculate future demand (number of employees) can be the most recent figure, or an average of the up-to-date period (e.g., the

past four years, for which the average is 18.44). In this trend analysis, the most recent ratio (18.64) for the year 2017 was used for forecasting.

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NEL 109CHAPTER 5 Determining HR Demand

HR PLANNING NOTEBOOK 5.2

YEAR
OPERATIONAL
INDEX SALES

ACTUAL NUMBER
OF EMPLOYEES

REQUIRED

ACTUAL EMPLOYEE
REQUIREMENT

RATIO (SALES PER
EMPLOYEE)

FORECAST
NUMBER OF
EMPLOYEES
REQUIRED

FORECAST
EMPLOYEE

REQUIREMENT
RATIO (3-YR
MOVING AVG

OF SALES PER
EMPLOYEE)

2014 $2,880 155 18.06
2015 $3,050 171 17.83
2016 $3,195 166 19.25
2017 $3,300 177 18.64
2018 $3,500 185 18.92 188 18.57
2019 $3,600 200 18.00 190 18.94
2020 $3,850 210 18.3 208 18.52

The forecast employee requirement ratio is developed from the prior 3 years of actual employee requirement ratios. For example, the forecast
ERR for 2018 is calculated as the average of the actual ERR for 2015, 2016, and 2017, or (17.83 1 19.25 1 18.64)/3 5 18.57

TIME SERIES ANALYSIS: PUSLINCH POTTERY

past two or three periods as the estimate for future demand. HR Planning Notebook 5.2
shows an adaptation of the trend analysis in Notebook 5.1 that uses a simple moving
average. Another form of moving average is a weighted moving average, in which all
periods of actual demand data are used to estimate future demand, but greater weight
is given to more recent demand data. A weighted moving average places more impor-
tance on recent demand data. To capture seasonality or trends in demand, exponential
smoothing is used. Exponential smoothing also uses all past demand data, but places
much greater weight on the most recent demand data (even greater weighting than a
weighted moving average).

Although trend/ratio analysis is widespread due to its ease of use, remember that
the analysis usually incorporates only the relationship between a single business vari-
able and demand for labour (workforce size). By design, any single-variable relationship
provides a relatively simplistic forecast of demand. For more comprehensive analyses
that reflect a variety of factors affecting business operations, such as customer prefer-
ences, interest rates, level of unemployment, consumer disposable income, and so on,
the quantitative techniques normally employed are multivariate regression or other
similar modelling/programming models.2 These models typically depend on large
amounts of reliable data.

REGRESSION ANALYSIS
Regression analysis can be thought of loosely as an extension of trend analysis, except
that rather than using a single operational index (which in regression would be called
the independent or predictor variable), regression uses more data than the ratio of the

Regression analysis
Presupposes that a
linear relationship
exists between one
or more independent
(causal, or predictor)
variables, which are
predicted to affect the
dependent (criterion)
variable—in our
instance, future HR
demand for human
capital (i.e., the
number of employees)

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NEL110 Strategic Human Resources Planning

operational index to employees, and regression can use multiple predictor variables to
forecast the required number of employees. The purpose of regression is to estimate a
trend or relationship between one or more predictor variables and an outcome variable
(see HR Planning Today 5.1 for an example of regression analysis). If we are able to
predict enough variability in the outcome (or criterion) variable with our trend line, then
the trend line may be used to extrapolate beyond the data at hand to create a forecast.
If we have a single predictor variable, and plot the predictor variable (e.g., sales) along
the x-axis, and plot the criterion variable (which in our case would be the number of
employees required) on the y-axis, we might get something that looks like the scatter-
plot in Figure 5.2a. Remember that the predictor variable is the information that we are
using to try to predict or forecast the number of required employees; in this case, we
are trying to predict the number of employees who will be required as sales revenues
increase. Where trend analysis borrows information from a single or from several data
points on the scatterplot to derive an employee requirement ratio, regression borrows
information from all the data points to predict the criterion. Regression essentially
draws a line that best describes the trend or relationship between the predictor and
the criterion as shown in Figure 5.2b. It does this by drawing the line that reduces the
sum of the distances between each point on the scatterplot and the line.3 The slope of
that line represents the amount of variability in the criterion that can be described by
the independent variable. By travelling up or down that trend line we can predict the
number of employees required for a given level of sales. When a regression includes two

Sales

Em
pl

oy
ee

s

FIGURE 5.2A

SCATTERPLOT

Sales

Em
pl

oy
ee

s

FIGURE 5.2B

TRENDLINE

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NEL 111CHAPTER 5 Determining HR Demand

independent variables (e.g., sales as well as production volume), another axis is added
as in Figure 5.3, and the regression line becomes a three-dimensional regression plane.
A regression can include as many variables as make sense for the model, although the
model becomes more complex. This begs the question how many predictors are best,
and what are good predictors?

The choice of predictor (also known as independent) variables is based on a logical
or theoretical basis for assuming that a change in each predictor should for one reason
or another lead to a change in the criterion (or outcome, which is the demand forecast).
When trying to predict demand, it is useful to try to include enough independent vari-
ables to predict as much variability in the criterion as possible. For example, if we are
trying to predict the number of vehicle service technicians required at a car dealership,
we could develop a model based on a single predictor such as the number of monthly
service appointments. If the variability in the number of service technicians and the
variability in the number of monthly service appointments are represented by the two
circles in Figure 5.4a, the overlap between the two circles represents the amount of
variability in the number of service technicians that is accounted for or explained by
our predictor (the number of service appointments). Because there is still quite a bit
of variability in the number of service technicians left unexplained by our model, and
because it would be fairly easy to think of a few more possible predictors, it might be
prudent to add more predictors to our model. If we add the revenues generated from
service appointments as another predictor, we can see that the model with two predictor
variables predicts even more of the variability in the number of service technicians
required (Figure 5.4b). We can continue to build our model until we have exhausted
the choice of reasonable predictor variables, or until we have predicted most of the
variability in the number of required service technicians.

FIGURE 5.3

THREE-DIMENSIONAL REGRESSION PLANE

Production
Sales

Employees

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NEL112 Strategic Human Resources Planning

Variability in
number of
ser vice
appointments

Variability
in number
of required
ser vice
technicians

FIGURE 5.4A

SHARED VARIABILITY BETWEEN PREDICTOR AND CRITERION

Variability in
number of
required
ser vice
technicians

Variability in
number of
ser vice
appointments

Variability in
ser vice
appointments
revenues

FIGURE 5.4B

INCREASE IN SHARED VARIABILITY USING MORE PREDICTORS

Some of the variables we select as predictors might be unnecessary. For example, if
we are using the value of parts used by the service department as a predictor and add the
total service department costs as another predictor, we might find that because the value
of parts used comprises almost all of the total service department costs, the variability in
these two predictors almost completely overlap one another with the criterion variable
(Figure 5.4c). This means that these two predictor variables are very highly correlated,
and that it is unnecessary to include both predictors in the model, as one predictor can

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NEL 113CHAPTER 5 Determining HR Demand

FIGURE 5.4C

THE PREDICTIVE REDUNDANCY OF HIGHLY CORRELATED PREDICTORS

Variability in
total ser vice
department
costs

Variability in
cost of parts

Variability in
number of
required ser vice
technicians

do all the work of the other in terms of predicting variability in the criterion. Thus, the
choice of the number of predictors can be guided by the results of the regression model
itself and by the relationships between the predictors.

When developing a model, Meehan and Ahmed4 suggest grouping possible pre-
dictor variables in three categories: (1) key variables, which are almost certain to
play a role in predicting the employee requirement; (2) promising variables, which
appear important and you suspect will probably relate to predicting the employee
requirement; and (3) possible variables, which may not be necessary for the model.
Once the variables have been selected, past data for the variables can be entered into
a regression model and run through a statistics package (such as SPSS, SAS, R, or
even Excel). The results of the statistics software will indicate how much variability
in the criterion is predicted by the entire model; this is called the coefficient of
determination. Again, the more variability in the criterion variable that is predicted
by the model, the better. The model can be refined until the maximum amount of
variability is predicted.

At this point, the HR planner can use the model to forecast future needs for ser-
vice technicians based on known values of the predictor variables, and use the model
to create “what if ” scenarios. The relative strength of each of the predictor variables
is assessed using regression, which provides an understanding of the sensitivity of the
criterion variable to changes in each of the predictors. This flexibility and ease of use
as a modelling tool once the model has been developed helps to make regression a
powerful and highly useful forecasting tool. Given the explosion in the types and
amount of data gathered by organizations today, regression models can benefit from
this proliferation of data and help to make sense of an otherwise confusing mass of
information.

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NEL114 Strategic Human Resources Planning

Limitations of regression: While regression models can be highly useful forecasting
tools, like any powerful tool, statistical regression has its limitations. A primary limi-
tation of regression is that it is very good at predicting linear relationships between
variables but becomes an unreliable and potentially misleading tool for prediction
when relationships are nonlinear. An example of a linear relationship between two
variables might be the relationship between gas consumption and the number of
kilometres driven per year. The more kilometres you drive, the more gas you will use.
A nonlinear relationship might be the relationship between the sales at a grocery store
and the number of required employees. While these variables should correlate, and
while the relationship might be linear over a particular set of values, a grocery store
requires a full complement of employees even when there are only a few shoppers, and
as the number of shoppers and the size of their grocery carts increase, the numbers of
additional employees required might be expected to increase at a decreasing rate. Thus,
we might expect to see a relationship such as the one depicted in Figure 5.5, which is
a fictional example showing that as sales increase, the number of required employees
at first increases linearly, but then the rate of increase changes as economies of scale
require proportionately fewer employees. Linear regression produces a prediction (or
trend) line that is a straight line. Thus, when the relationship between a predictor and
the criterion is not linear, it is not a good choice as a predictor. Because a stable, linear
relationship cannot be assumed in emerging markets or in environments characterized
by dramatic innovations, regression may not be an ideal forecasting method for highly
unstable markets.

Finally, regression models require sufficient amounts of historical data on which
to develop predictions. For newer or smaller firms, it may take some time to develop
enough data to enable regression to be useful. A general rule of thumb to begin is that
a minimum of 20 observations are required in order to detect a strong relationship;
however, as the number of predictor variables increases in the model and as the expected
effect size of the predictors on the criterion decreases, the number of required observa-
tions becomes larger.

Summary: Regression models help HR planners to make use of large amounts
of organizational data. These models can be easily adapted to reflect organizational
changes or new assumptions, and are a good choice for short-term, medium-term, and
long-term forecasts. However, quantitative models based on historical data may not
be the best indicator of future needs if the business or environment is in a period of
significant transition.

Sales

N
um

be
r o

f E
m

pl
oy

ee
s

FIGURE 5.5

NONLINEAR RELATIONSHIP

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NEL 115CHAPTER 5 Determining HR Demand

HR PLANNING TODAY 5.1

REGRESSION IN ACTION

To get a sense of how regression may be used, we will
take a very simple, fictional case of a motorcycle manu-
facturer. Lacrosse Motorcycles represents the rejuvena-
tion of an iconic brand of motorcycle from the 1960s.
The motorcycles the company produces are large, rugged
bikes that are technologically simple, and inexpensive to
buy and maintain. Lacrosse has been growing rapidly

since first opening its doors almost five years ago, and
now has sales and production data from approximately
20 quarterly periods. Using prior information about pro-
duction, sales, and the numbers of full-time equiva-
lent employees working during each of those quarters,
we would like to forecast the company’s demand for
employees as it grows.

SALES PRODUCTION EMPLOYEES
70 20 50
74 22 55
80 25 62
82 27 70
83 32 70
102 40 85
88 45 75
95 33 75
55 35 75

SALES PRODUCTION EMPLOYEES
97.5 40 80
100 50 85
105 52 92
108 55 95
120 60 105
135 70 115
150 75 125
165 80 135
175 90 150

We can examine the extent to which production
predicts the number of required employees by building
a regression using production as the only predictor of
employees. The resulting plot of our data including the
regression trend line is shown here:

The equation for the trend line, which we get from
our statistics package, looks like this:

Employees 5 27.3 1 (1.3) 3 production

Our statistics package also reports the coefficient
of determination as 0.97, which can be interpreted as
meaning that 97 percent of the variability in the number
of employees can be explained by production. This is
clearly very high and is much higher than you might see
in most real-life situations. The equation can be inter-
preted as meaning that for every one-unit increase in
production, we will need 1.3 more employees. The 27.3
number represents the intercept point on the graph where
the predictor (in our case, production) is zero. While the
number of workers required when production is zero is
probably not relevant to the forecaster, this point shows
where the trend line begins for these data. So, if we want

to extrapolate how many employees we will need when
production ramps up to 200 motorcycles, we simply insert
it into our formula:

Employees 5 27.3 1 (1.3) 3 200 motorcycles

This means that in order to produce 200 motorcycles,
we will need 27.3 + 260 = 287 employees. The trend
line shows production values and the required number of
employees for values that are included in the data. How-
ever, we have used the regression equation to extrapolate
beyond the data to forecast a future anticipated level of
production. In this way, regression is useful for making
predictions beyond the data at hand, provided that it is
safe to assume that the relationship between the predictor
and the outcome is more or less linear.

Not forgetting that we also have sales data, we
can create another model that includes sales into our
regression. The results of this statistical analysis are the
following:

Employees 5 19.82 1 (0.97) 3 Production 1 (.22)
3 Sales

(continued )

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NEL116 Strategic Human Resources Planning

Our statistics package reports the coefficient of
determination for this model is .975, which means that
97.5 percent of the variability in the number of employees
required can be accounted for by both production and
sales. The model is interpreted as saying that when holding
production constant, for every one-unit increase in sales
(sales units are in thousands of dollars, so one-unit of
sales equals $1000), we require 0.22 more employees.
When holding sales constant, every one-unit increase in
production requires 0.97 more employees. This suggests
that our model is more sensitive to changes in production

than to changes in sales.5 How does this compare to our
earlier (and simpler) model? This model predicts .5!per-
cent more variability in employees than our model that
uses just production. Is that worth making the model more
complicated? Probably not, as we are just as well served
by the model that uses only production as a predictor
of employees. The best regression model is the simplest
model that predicts the most variability in our criterion
variable. Thus, the best model given these data is our
first model that uses production as a single predictor of
employees.

14
0

10
0

60
20 30 40 50 60

Production

Em
pl

oy
ee

s
70 80 90

Customer
demand

Supplier
dependability

Employee
turnover

Demand for
manufacturing

employees

Advertising
and

marketing

Interest
rates

New home
starts

Competitor
product
cycle

Our price

FIGURE 5.6

STRUCTURAL EQUATION MODEL

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NEL 117CHAPTER 5 Determining HR Demand

STRUCTURAL EQUATION MODELLING
Structural equation modelling (SEM) can be thought of as a process similar to regres-
sion, except where regression deals with a single outcome variable at a time, there can
be many outcome variables in a single SEM model. This permits the use of more vari-
ables and the development of more complex models using SEM. The primary drawback
to SEM versus regression is that SEM typically requires more data observations than
regression.

Forecasters can develop a model of labour demand based on their own theory
as to what factors may be driving demand. Provided that measures exist for each of
the variables in their proposed theoretical model, and provided that enough data has
been collected on each variable, forecasters can use SEM to statistically test the effect
of their proposed model on demand. Figure 5.6 shows a fictitious example of a basic
structural equation model of employee demand for the job of a manufacturing worker
in a company that produces recliners.

// QUALITATIVE FORECASTING TECHNIQUES
Quantitative models can be very useful, especially in mature industries or where envi-
ronmental changes are predictable or stable. When there is a great degree of uncertainty,
qualitative models may be preferable. Qualitative models may also be useful when no
formal planning exists, and no formal data collection occurs around a planning process.
Qualitative forecasting in the form of direct managerial input is the most commonly
used method for determining workforce requirements.6

MANAGEMENT SURVEY
A large portion of Canadian companies use basic forms of human capital planning, and
some do not forecast their demand for human capital at all.7 Those firms that do no
planning essentially hire on an as-needed basis. As jobs become open through attrition
or expansion, the line manager notifies the HR department of the need to hire, and the
recruitment process is initiated. Basic informal planning occurs when managers anticipate
their needs over the near term, and submit requests based on their knowledge of and
past experience with the business.

Using experts to arrive at a numerical estimate of future labour demand is considered
to be a more formal qualitative process for determining future labour requirements,
because it is a detailed process of stating assumptions, considering potential organizational
and environmental changes, and deriving a rationale to support the numerical estimate.

One of the issues with qualitative decision methods, as pointed out by Philip
Tetlock8 in his book Expert Political Judgment: How Good Is It? How Can We Know? is that
experts are very often wrong. However, James Surowiecki9 finds that groups of people
are very often correct. Qualitative forecasting methods such as the Delphi technique and
nominal group technique make use of groups of experts in an effort to increase the
validity and reliability of the forecast and of the information used to formulate the
forecast. When a group of experts is involved in a forecasting exercise, each expert
benefits from the knowledge and assumptions of all other experts involved. This way,
the limitations of any single mental model used by any single expert are reduced by

Structural equation
modelling (SEM)
A statistical technique
that permits the testing
of multiple relationships
simultaneously in a
theoretically derived
model

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NEL118 Strategic Human Resources Planning

exposure to others. Furthermore, qualitative methods of forecasting such as these increase
the reliability of the information by working through an iterative process where each
expert has the opportunity to clearly explain his or her assumptions and decisions. This
means that all experts share the same understanding of one another’s assumptions before
arriving at a final forecast decision.

A wide variety of individuals may be considered experts for their knowledge of
organizational operations, competitive HR practices, international trends in the labour
markets, and so on.10 First and foremost, the organization’s own line managers, who each
have detailed knowledge of workload, responsibilities, and overall task responsibilities
for a department, possess important insights into how future demand for labour should
or might change in the manager’s own areas of responsibility. Second, the organiza-
tion’s HR and line managers certainly have critical information to provide guidance
in forecasting future levels of labour demand. For example, the planning staff may use
econometric and strategic models to predict the future level of sales of, or demand for,
the organization’s goods and services, as well as provide important insights into future
economic indicators affecting labour demand such as interest rates, change in gross
national product, level of consumer disposable income, savings, and so on. The HR
staff, whether they are HR generalists or a team of HR planning specialists, are able to
draw up a detailed set of assumptions with respect to industry, local, and international
labour market trends that affect how the organization organizes and employs its own
workforce. Third, business consultants, financial analysts, university researchers, union

HR PLANNING NOTEBOOK 5.3

DIVERSITY AND DEMAND

The rate of growth in participation in the Canadian labour
force for women and visible minorities is expected to out-
pace the rest of the labour market until the early 2030s.
Because a majority of the new entrants into the labour
force will be women and visible minorities, it is impor-
tant for firms to develop diversity plans. Furthermore,
Canada’s Employment Equity Program requires that all
federally regulated firms (which include banks, telecom-
munications firms, air and rail transportation companies,
and the federal government) produce annual reports of
the representation of members of the four designated
groups in their organizations, and plans to achieve full
representation. Therefore, in addition to forecasting the
demand for particular jobs, organizations should incorpo-
rate demand estimates for increasing participation among
Canada’s designated groups. Diversity has the potential

to increase organization-wide performance when diversity
goals go beyond participation rates for protected groups,
and incorporate the mental models used by members of
protected groups when setting strategy and determining
the core activities of the firm.

One way to understand diversity requirements is
by comparing the diversity of the applicant pool and of
the firm’s employees to that of the general population.
If the diversity of the applicant pool or of employees is
substantially different from the Canadian population,
strategies can be developed to increase the recruitment
and selection of members of designated groups. Can you
suggest a type of model that might be useful to forecast
diversity needs? How might diversity needs be integrated
into methods of forecasting demand for jobs or neces-
sary skills?

Sources: Government of Canada, “2006 Employment Equity Data Report: Designated Group Profiles,” retrieved from http://www.labour.gc.ca/eng/
standards_equity/eq/pubs_eq/eedr/2006/profiles/page06.shtml; Government of Canada, “2013 Employment Equity Act Annual Report: Employment
Equity,” retrieved from http://www.labour.gc.ca/eng/standards_equity/eq/emp/index.shtml; and Thomas, D.A., and Ely, R.J. (1996) Making Differ-
ences Matter: A New Paradigm for Managing Diversity, Harvard Business Review, 74(5), pp. 79–90.

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NEL 119CHAPTER 5 Determining HR Demand

staff members, industry spokespersons, and others possess detailed knowledge of spe-
cific industries or types of organizational activity and are able to give rich, detailed,
and largely impartial judgments on future labour demand because of their external
perspective relative to the organization. Finally, but not exclusively, federal, provincial,
and local governmental staff and officials are important individuals to consult, because
they possess knowledge of future environmental changes in labour and business legisla-
tion that can dramatically change labour demand not only for a specific organization
but also for the industry in general. For example, pending legislation to ban the use of
certain materials in product manufacturing might cause a substantial drop in demand
for these products and hence an associated reduction in demand for employees who
are involved in their manufacture.

Government ministries and departments, most specifically those devoted to labour,
HR, economic development, and Statistics Canada, can all provide expert information
for the labour demand forecasting process. Interviews, questionnaires (conducted in
person or by mail or email), and telephone conference calls are some of the options
available for gathering information from experts, but other techniques can be employed
to maximize the benefit of each expert’s contributions in specific circumstances. We
now turn our attention to some of these methods of facilitating high-quality labour
demand forecasts.

SCENARIO PLANNING
Scenario planning is a method often used to develop organizational strategy. A primary
strength of scenario planning as a strategy-setting tool is that it encourages participants
to develop strongly shared mental models of future organizational states. Scenario plan-
ning is a method for imagining future possible conditions in which the organization
might operate. As a technique, it requires participants to challenge existing assumptions
and to generate vivid pictures of possible future states. The general process of scenario
planning is as follows:

1. Propose the forecasting question about the future state of the firm or
environment. For example, “how many households will own an electric
car in 10 years”?

2. Generate a list of factors that are likely to influence the outcome in question.
It is often useful to perform a SWOT analysis that takes into account fac-
tors such as the economy, the political landscape, society, and the impact of
technology.

3. Sort the factors into naturally occurring groups and rank the groups
according to their importance to the main question and the ability of the
firm to control the factor. Factors that the firm has less ability to control
should receive higher rankings.

4. Select the two groups of factors that are likely to have the strongest and most
unpredictable impact on the question. Create four quadrants (see Figure 5.7)
by stretching one group along a continuum from its extreme negative con-
dition to its extreme positive condition on the x-axis and the other group
along a continuum from its extreme low to high conditions on the y-axis.

5. Name and describe in story form each of the four worlds in the four
resulting quadrants.

Scenario planning
A method for imagining
future possible organi-
zational states and the
resulting capabilities,
activities, or strategies
that are necessary to
be successful in those
future states

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NEL120 Strategic Human Resources Planning

6. Suggest the skills, competencies, and other organizational requirements that
would be necessary for the firm to be able to operate in each of these four
worlds.

7. Generate a demand forecast necessary to fulfill the firm’s requirements in
each of the four worlds.

The process of describing each of the proposed worlds helps participants to under-
stand ways in which current mental models are influencing thinking and action, and to
develop new shared mental models. The benefit that scenario planning brings to demand
forecasting is that while there is really no limit to the number of possible scenarios that
the future could hold, this method allows planners to understand the most important
assumptions that go into each demand forecast. Understanding what assumptions are
the most influential to a demand forecast helps the planner to know how sensitive the
forecast is to each assumption. For example, if the scenario planning exercise suggests
that the driving range and passenger capacity of electric cars are the factors that will
most influence the future demand for electric cars, then demand estimates for the future
number of employees required to produce electric cars will be most sensitive to changes
in these assumptions. In other words, potentially small changes to these assumptions
could bear large differences in the demand estimates for employees. Scenario planning
therefore assists planners in developing a variety of future demand scenarios, and helps
planners to understand how much leeway exists in any one demand forecast before that
forecast is no longer viable.11

This flexible demand forecasting process is very useful for incorporating the effects
of uncertainty and change into the strategic HR planning process. Each of the scenarios
or predicted future states contains its own set of assumptions, resulting in an entirely

F1 Extreme Positive Perspective
Driving range 600 km between charges

F2
E

xt
re

m
e

N
eg

at
iv

e
Pe

rs
pe

ct
iv

e
Se

at
in

g
fo

r 2
, n

o
ca

rg
o

Estimate employee
demand when vehicle
can carry 1 passenger
600 km

Estimate employee
demand when vehicle
can carry 7 passengers
600 km

Estimate employee
demand when vehicle
can carry 7 passengers
80–100 km

Estimate employee
demand when vehicle
can carry 1 passenger
80–100 km

F2 Extrem
e Positive Perspective

Seating for 7 passengers plus cargo

F1 Extreme Negative Perspective
Driving range 80–100 km between charges

FIGURE 5.7

SCENARIO PLANNING

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NEL 121CHAPTER 5 Determining HR Demand

different estimate presented in a single staffing table for each specific course of action.
In this way, an organization’s HR staff are able to develop, with the associated staffing
tables, future scenarios that are optimistic (e.g., sales levels will increase by 10 to 15 per-
cent), realistic or most likely (e.g., sales levels will increase by 5 to 10 percent), or pes-
simistic (e.g., sales levels will remain constant or increase by less than 5 percent). By
means of this comprehensive, explicit set of staffing tables, which reflects a wide variety
of future organizational circumstances, the scenario planning technique allows ready
access to flexible, preplanned demand estimates when circumstances rapidly change.

DELPHI TECHNIQUE
The Delphi technique, named after the Greek oracle at Delphi and developed by
N.C. Dalkey and associates at the Rand Corporation in 1950, is another useful qualitative
method for deriving detailed assumptions of long-run HR demand.12 This forecasting
technique is “a carefully designed program of sequential, individual interrogations (usu-
ally conducted through questionnaires) interspersed with feedback on the opinions
expressed by the other participants in previous rounds.”13 Its key feature is that once
a group of experts is selected, the experts do not meet face to face.14 Instead, a project
coordinator canvasses them individually for their input and forecasts by means of a
progressively more focused series of questionnaires.

The advantage of the Delphi technique is that it avoids many of the problems
associated with face-to-face groups, namely reluctance on the part of individual experts
to participate due to (1) shyness, (2) perceived lower status or authority, (3) perceived
communication deficiencies, (4) issues of individual dominance and groupthink (i.e.,
group conformity pressures), and so on.15 Because the Delphi technique does not employ
face-to-face meetings, it can serve as a great equalizer and can elicit valid feedback from
all expert members. It is also advantageous that the Delphi technique can effectively
use experts who are drawn from widely dispersed geographical areas.16 See HR Planning
Today 5.2 for more details on the Delphi technique.

There are disadvantages associated with the Delphi technique, as there are with all
forecasting techniques. In particular, because of the series of questionnaires administered
to derive a forecast, the time and costs incurred when using the Delphi technique can
be higher than those incurred when using alternative forecasting methods. Another
deficiency is that since the results cannot be validated statistically, the process is greatly
dependent on the individual knowledge and commitment of each of the contributing
experts.17 Furthermore, if the experts are drawn from one specific field, their common
professional training might guide them along a single line of inquiry (i.e., follow a single
mental model) rather than pursuing more innovative and creative courses of action.
Finally, if insufficient attention has been paid to developing criteria for the identification
and selection of experts, the people selected to derive the demand forecasts may lack
sufficient expertise or information to contribute meaningfully to the process.18 There
are six steps associated with using the Delphi technique for HR demand forecasting.

1. DEFINE AND REFINE THE ISSUE OR QUESTION

During this stage, a project coordinator is assigned, and he or she works with the HR
staff to determine the specific job or skills category or activity that will be the focus
of the Delphi technique. It is essential that the group targeted for HR forecasting be

Delphi technique
A process in which
the forecasts and
judgments of a
selected group of
experts are solicited
and summarized in an
attempt to determine
the future HR demand

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NEL122 Strategic Human Resources Planning

HR PLANNING TODAY 5.2

THE DELPHI TECHNIQUE IN ACTION

The Delphi technique is used in a wide variety of appli-
cations for HR forecasting. For example, an agricultural
research organization started by deriving nine organiza-
tional core competencies from interviews and internal
organizational documentation. The experts were identi-
fied by the organization, which asked them to respond to
a set of questionnaires based on the Delphi technique. The
questionnaires investigated:

1. The importance of human competencies in the
future

2. The capacity of the organization’s current human
resources

3. Ranking the nine organizational core competencies
in order of priority

HR policy interventions were developed from the
resulting information.

A three-round Delphi procedure was used to identify
the basic competencies of research chefs, who develop new
products, create new recipes, and conduct food testing.

Thirty-three expert chefs were involved in the Delphi under-
taking, and they were asked questions concerning:

1. Factors differentiating successful from less suc-
cessful research chefs

2. Knowledge and skills required by successful research
chefs

3. How tasks for a research chef differ from those of
an ordinary chef

The experts identified 19 basic competencies that a
successful research chef should possess.

Finally, subsequent to the September 11, 2001, ter-
rorist attacks on the United States, the Delphi technique
was used by the government and insurance and risk man-
agers to estimate the possibility of future losses due to
terrorism, and the likely types of terrorist acts various
organizations might experience. Experts used the Delphi
technique to analyze databases on landmarks, tourist
attractions, “vital points,” and property assessment data
to come up with their forecasts.

well defined so that relevant, focused, and detailed feedback based on a minimum of
assumptions (redundant assumptions are associated with loss of the experts’ time) can
be derived.

2. IDENTIFY THE EXPERTS, TERMS, AND TIME HORIZON

The project coordinator, normally in conjunction with the HR staff, identifies and
selects a team of individuals deemed to be experts with respect to the specific human
capital grouping that requires a forecast. The number of experts to include in an expert
panel (see below) typically range between 7 and 15.19 Next, given that in many cases
the group of experts will include individuals who are not members of the organiza-
tion, it is important for both parties to reach agreement on the terms and conditions
for participation in the forecasting process, as well as setting the context and explicitly
defining the nature of the work. For example, the team of experts must be absolutely
clear on which jobs constitute “production workers” if those experts are being asked to

Sources: Adapted from T. Guimaraes et al., “Forecasting Core Competencies in an R&D Environment,” R&D Management, Vol. 31, No. 3 (July 2001),
pp.!249–255; K. Birdir and T. Pearson, “Research Chefs’ Competencies: A Delphi Approach,” International Journal of Contemporary Hospitality Manage-
ment, Vol. 12, No. 3 (2000), pp. 205–209; and B. Coffin, “Forecasting Terrorism Losses,” Risk Management, Vol. 49, No. 11 (November 2000), pp. 8–9.

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NEL 123CHAPTER 5 Determining HR Demand

derive a demand forecast for this category. Similarly, the exact time horizon(s) must be
specified for the human capital category being analyzed.

3. ORIENT THE EXPERTS

In addition to identifying the relevant time horizon(s) and clarifying which employee
groups are of interest, the orientation process for experts includes an overview of the
demand forecasting decision process (which is very similar to the structural framework
in which you are now engaged!). The experts are told either that there will be a prede-
termined number of questionnaire iterations or that the sequence will continue until a
majority opinion exists among the experts.

4. ISSUE THE FIRST-ROUND QUESTIONNAIRE

The project coordinator sends each expert the questionnaire by courier, fax, mail, or
email and includes a time frame for completing and returning it. Typically, this first
questionnaire focuses on defining both the explicit assumptions made by each of the
experts and the background rationale supporting his or her particular demand estimate.

5. ISSUE THE FIRST-ROUND QUESTIONNAIRE SUMMARY AND THE SECOND
ROUND OF QUESTIONNAIRES

Following the completion of the first questionnaire, the project coordinator sends the
second and subsequent rounds of questionnaires to the experts with a written summary
of the findings from the previous round. The aim of the subsequent questionnaires is to
focus the experts’ initial assumptions and estimates by providing summarized feedback
from all members of the group. Points of commonality and conflict are identified in
the summary, as is the need to clarify specific assumptions identified by the responses
to the previous round.

6. CONTINUE ISSUING QUESTIONNAIRES

The project coordinator continues to issue questionnaires until either all the predeter-
mined questionnaire stages have been completed and summarized or the group reaches
a clear majority decision. In either case, the majority or nth-round summary summarizes
the experts’ future demand estimate for the HR category under analysis.

NOMINAL GROUP TECHNIQUE
Although the nominal group technique (NGT) is also a long-run, qualitative demand
forecasting method, it differs from the Delphi technique in several important respects.
First, unlike in the Delphi technique, the group does, in fact, meet face to face and
interact, but only after individual written, preparatory work has been done and all the

Nominal group
technique (NGT)
Long-run forecasting
technique utilizing
expert assessments

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NEL124 Strategic Human Resources Planning

demand estimates (idea generation) have
been publicly tabled, or written on a flip
chart, without discussion.20 Second, each
demand estimate is considered to be the
property of the entire group and to be
impersonal in nature, which minimizes
the potential for dominance, personal
attacks, and defensive behaviour in sup-
port of estimates presented in the group
forum.21 Finally, the expert forecast is
determined by a secret vote of all group
members on their choice of the tabled
demand forecasts. The estimate receiving
the highest ranking or rating during the
voting process is deemed to be the group’s
forecast.22 A primary advantage to NGT is
that it allows all participants to contribute
to the process at an equal level by reducing
the tendency for more extroverted indi-
viduals to dominate the process.23 See HR
Planning Today 5.3 for more information
on the NGT. Readers are invited to experi-
ence a nominal group technique as part of
a group exercise at the end of this chapter.

// HR BUDGETS/STAFFING TABLES
HR budgets are quantitative, operational, or short-run, demand estimates that contain
the number and types of jobs or positions required by the organization as a whole and
for each subunit, division, or department (see Table 5.1 for a hypothetical example for

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Expert opinion can be used to prepare estimates.

HR PLANNING TODAY 5.3

ASSESSING THE UTILITY OF THE NOMINAL GROUP TECHNIQUE

Studies have shown that nominal group technique (NGT)
is especially effective for brainstorming sessions to
ensure all participants have an equal voice in the ses-
sions, and when a problem or issue stems from several
widely diverse causes. Furthermore, studies have shown
that NGT provides highly reliable and valid qualitative
data that is ranked by importance, and is superior to that
derived from focus group sessions. Nominal group ses-
sions investigating teaching performance competencies
on 13 dimensions (technical knowledge, planning and

organizing, managing interaction, commitment to teaching
objectives, proactive orientation, student development ori-
entation, class presentation ability, impact on the class,
adaptability and flexibility, personal motivation, listening
skills, oral communication skills, and presentation skills)
were dramatically superior to information obtained from
focus groups. The study predicted that nominal group
technique will replace focus groups as the qualitative
research method of choice and will reduce the need for
the administration of surveys.

Sources: Adapted from B. Andersen and T. Fagerhaug, “The Nominal Group Technique,” Quality Progress, Vol. 22, No. 2 (February 2000), pp. 144–145;
and B. Langford et al., “Nominal Grouping Sessions vs. Focus Groups,” Qualitative Market Research, Vol. 5, No. 1 (2002), pp. 58–70.

HR budgets
Quantitative, operational,
or short-run demand
estimates that contain
the number and types
of jobs required by the
organization as a whole
and for each subunit,
division, or department

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NEL 125CHAPTER 5 Determining HR Demand

STAFF DEMAND REQUIREMENTS

SALES ($ MILLIONS)

$1–10 >$10–25 >$25–50 >$50–75

ADMINISTRATIVE POSITIONS

President 1 1 1 1

Vice-presidents 1 1 2 3

Marketing managers 1 1 2 2

Sales staff 4 7 10 18

HR staff 2 4 5 7

Treasurer 1 1 1 2

Financial staff 3 5 7 9

Clerical and general staff 5 8 12 14

PRODUCTION POSITIONS

Executive chef 1 1 1 1

Chef 2 4 5 6

Cook 8 15 25 35

Haggis helper 10 20 30 40

Saucier 1 3 5 6

TABLE 5.1

STAFFING TABLE AND HR BUDGET, ENNOTVILLE EATERIES

the firm “Ennotville Eateries”).24 These HR budgets, prepared by the
HR staff in conjunction with line managers, take into consideration
information from historical company staffing trends, competitor
staffing practices, industry and professional associations, and Sta-
tistics Canada.

The HR budget process produces a staffing table, which con-
tains information related to a specific set of operational assumptions
or levels of activity (e.g., maintain the current organization structure,
increase the sales level by 5 percent over last year’s level). The staffing
table presents the total HR demand requirement, laid out in terms
of the number of people required by level (e.g., vice-presidents) and
function (e.g., marketing).

In this way, HR planners can determine short-run future demand
requirements for subunits and the organization as a whole. This
enables budgeting processes to incorporate changes in compensation
costs linked to the level of future human capital demand.

Using a variety of indices, HR professionals can esti-
mate the number and type of human capital needed.

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Staffing table
Total HR demand
requirement for opera-
tional or short-run time
periods

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NEL126 Strategic Human Resources Planning

// COMBINING QUANTITATIVE AND
QUALITATIVE METHODS
Quantitative and qualitative methods are not exclusive methods where the forecaster
decides to use one method at the expense of the other. These two basic methods can
both be used in order to test the reliability of the forecast. If both methods arrive at
similar forecasts, then planners can be more certain of the results. However, if one
method leads to dramatically different results from the other, then it would be reason-
able to question the assumptions of both methods to try to understand where differ-
ences in assumptions lead to discrepancies in the forecasts. HR Planning Notebook 5.4
demonstrates that the different types of information that quantitative and qualitative
methods use as inputs to the forecast can arrive at complementary findings. By using
both methods of analysis, planners can arrive at a richer, more detailed understanding
of the demand for labour, and how the factors that affect demand can change those
estimates. In addition to using both quantitative and qualitative methods in parallel,
as discussed above, these methods can be combined to form a very powerful method
of forecasting known as simulation.

HR PLANNING NOTEBOOK 5.4

DIFFERENCES BETWEEN QUALITATIVE AND QUANTITATIVE FORECASTING DATA

Quantitative and qualitative analyses can provide informa-
tion that complement one another. The kinds of data that
are used for each type of analysis are different, and these
differences lead to different perspectives on issues. Ideally,
both qualitative and quantitative analyses should suggest
similar demand forecasts. When this occurs, planners can
have more confidence in their processes. However, when

the two methods offer very different solutions, planners
should investigate where these differences are coming
from in their data, and seek to resolve the differences.
In general, quantitative and qualitative methods can be
compared based on the types of data that are used for
each method, and the kinds of results that each method
tends to produce.

Source: Adapted from Bartlett, K.R., Johnson, K.R., & Schneider, I.E. (2016). “Comparing strategic human resource development approaches for
tourism and hospitality workforce planning,” Journal of Human Resources in Hospitality and Tourism, 15(4), 440–461.

TYPE OF DATA
Quantitative Qualitative
Economic Outlook
Labour-force growth
Labour-force projections
Industry projections
Occupational projections

Economic Outlook
Demographics
Political and regulatory environment
Technological change
Societal change

TYPE OF RESULTS

Quantitative Qualitative
Detailed, numeric estimates More specific information that can easily be used

to produce HR system development plans

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NEL 127CHAPTER 5 Determining HR Demand

SIMULATION
Simulation is a powerful blend of quantitative and qualitative analysis. It is based on
the creation of a set of assumptions around the variables or inputs that are expected to
affect demand followed by a quantitative representation of those assumptions and their
interactions. These assumptions start at the macro level (e.g., the economy, changes
in technology, political or legislative outcomes, or demographics), and then incorpo-
rate organizational variables that could also influence demand such as the impact of
technology or process changes in production. Simulation can be used to model both
demand and supply, so models can also include supply-related variables such as the
amount of time required for training to become competent at a job level, and seniority
levels of employees in the job.

The assumptions that are used to build a simulation model employ mathematical
algorithms that reflect how variables are expected to react dynamically with the other
variables in the model. For example, the stock of employees in a job may not accurately
represent the level of skilled employees in that job at any given point in time. If a job
requires a lengthy training or mentoring period, then the flow of employees may be
suitable, but stocks of suitably skilled employees may be low or high for the firm’s
needs depending on where employees are in the training cycle. These types of delays
and accumulation processes lead to relationships with other demand characteristics such
as revenues or production that are not linear. Simulation can model these non linear
dependencies, and so simulation has an advantage over regression and trend-based
models for these types of applications.

The simulation process can be broken down into several steps:

1. Using qualitative methods, collect the relevant variables. This process can
use interviews, focus groups, Delphi, or NGT to collect the information.

2. Describe how these variables interact together to by developing a process
model to map the relationships between variables. Line managers who have
direct experience with the manner and ways in which the demand for human
capital changes over time and with sales are in an excellent position to pro-
vide insights to this process.

3. Use simulation software and develop the algorithms to estimate the model.
The range of assumptions developed qualitatively are used to run the simula-
tion several thousand times. The output of the simulation presents a range
of outcomes that occur most of the time. This range of outcomes represents
the envelope of estimates over which a demand estimate is likely to occur
given the current set of assumptions.

4. Test the model using historical data to validate the assumptions used in its
development.

5. Different assumptions can be easily tested in the model by inputting new
scenarios and re-running the simulation.

The main benefit of simulation in forecasting demand (and supply) is not in arriving
at a more accurate forecast, but in developing a better understanding of what factors influ-
ence demand and supply, and what processes may be causing bottlenecks in the flow of
human capital. In this sense simulation is considered to be more descriptive of processes
than prescriptive.25 The advantage of simulation is in providing knowledge around how
demand estimates might react to changes in environmental factors, in customer charac-
teristics, in the training or skills requirements of employees, or in any of the assumptions

Simulation
A blend of qualitative
and quantitative mod-
elling that incorporates
a set of assumptions
about relationships
among variables in a
mathematical algo-
rithm. Simulation can
simultaneously model
demand and supply,
and is very useful for
testing the impact of
assumptions on the
outcome of the model

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NEL128 Strategic Human Resources Planning

that are used to build the simulation model. While simulation forecasting is relatively
new to the HR field, it has been used for a decade or more in the areas of operations and
finance. HR practitioners in large organizations might be able to team with operations
and/or the finance department to develop integrated simulation models that incorporate
product demand with manufacturing constraints and human capital demand and supply
to streamline the flow of resources across the firm. This kind of integration between cus-
tomer needs and organizational resources can lead to faster response times for organiza-
tions to provide services or products to customers, which has the potential to provide a
source of competitive advantage through human capital planning, as discussed in HR
Planning Today 5.4.

HR PLANNING TODAY 5.4

SIMULATION IN THE SKILLED SERVICES INDUSTRIES

Industries such as electric power utilities, home and
industrial heating and cooling, electrical, and plumbing
all require highly skilled workers, and all involve unpredict-
able and volatile demand. When the Quebec ice storm of
1998 downed over 1000 electrical transmission towers,
it left over a million Canadians without heat and water for
days, and presented a large threat to the Canadian dairy
industry, which was unable to feed or milk cows.

Shocks such as these may be rare, but the industries
that deal with such events must be able to provide the ser-
vices necessary to recover quickly. Planning must include
scenarios for these rare occurrences. At a smaller scale, ser-
vice providers for those services that we consider to be nec-
essary, such as heating and air conditioning, are in a better
position to service their customers when they have skilled
technicians available whenever their customers have a need.
However, the more ready a company is with technicians, the
higher the potential for lost revenues from a surplus of techni-
cians when demand is not at its peak. Therefore, having the
right number of technicians available is a complex capability
that could act as a source of strategic competitive advantage.

In the home heating/cooling industry in Canada, the
demand for services is growing at a relatively stable rate,
as demand is a function of the number of homes. However,
the time required to develop a skilled technician to the
point of being available for active service can be quite long,
when considering the time to recruit and provide basic

and on-the-job training. Lead times can extend beyond 24
months for some jobs for highly skilled technicians. Mod-
elling the demand for such jobs must therefore account
for not only the stock of technicians, but also the flow of
technicians from recruitment to the point of being fully
active in the job. A simulation model will include vari-
ables such as the recruitment rate (the number of techni-
cians being hired), the number of employees taking basic
training as well as the number of active employees working
as trainers, the number of employees in the on-the-job
training phase, the number of active employees, and the
time it takes for employees to move from one phase to
the next. Additional complications to this model include
estimating the number of employees lost at each point
of the cycle, as well as the number of trainers who must
be removed from active service to perform basic training.
As the demand for employees increases, the demand for
trainers will increase to respond to the need to train the
increased numbers of employees in basic training. Each
phase of this model will have a mathematical equation
that is intended to simulate changes in the variables over
time, and their relation to other variables in the model.

Simulation models require skills in mathematics and
logistics to develop the algorithms used, but the concep-
tual basis of the model and the assumptions around the
building of the model require as much involvement from
HR and the business line.

Source: Adapted from Grossler, A., and Zock, A. (2010). “Supporting long-term workforce planning with a dynamic aging chain model: A case study
from the service industry,” Human Resource Management, 49, pp. 829–848.

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129CHAPTER 5 Determining HR Demand NEL

// SUMMARY
While demand forecasts will never be exact, the dramatic increase in the kinds of data
available to HR planners today offers the potential to increase the precision (and com-
plexity) of quantitative demand models. In this chapter, we examined various quan-
titative, qualitative, and blended techniques that organizations use to forecast future
requirements for HR demand. Qualitative methods range from a single manager’s esti-
mate to methods that challenge current assumptions like scenario planning, to models
that increase the validity and reliability of expert judgments such as Delphi technique
and nominal group technique. Delphi and NGT are versatile methods that can also be
used to help groups brainstorm or achieve consensus. HR practitioners should consider
using these methods not only for planning but also to gather the kinds of information
that could otherwise be collected using focus groups or surveys.

Demand forecasts are imperfect. HR planners must understand the assumptions
that form the basis of their forecasts and the sensitivity of the forecast to deviations
from these assumptions. Ideally, deviations from the forecast can be managed by HR
practices such as flexible work arrangements, part-time workers, contract workers etc.
However, when the assumptions are incorrect by a significant amount, contingency
forecasts and plans must be put in place. Good planning involves the development of
contingency plans, the ability to detect as early as possible when the current forecast can
no longer satisfy actual demand using current HR practices, and when a contingency
plan must be put into action.

KEY TERMS
Delphi technique p. 121
HR budgets p. 124
nominal group technique (NGT) p. 123
ratio analysis p. 106
regression analysis p. 109
scenario planning p. 119
simulation p. 127
staffing table p. 125
structural equation modelling (SEM) p. 117
trend analysis p. 106

DISCUSSION QUESTIONS
1. Imagine that you have a friend who owns and runs a family restaurant that special-

izes in plant-based whole foods. At capacity, the restaurant requires four wait staff
to wait on all the tables. While the restaurant has been getting busier and busier,
your friend has found it challenging to have the right number of wait staff working.
Sometimes when only one person is working, he or she is overwhelmed, and other
times the three or four people working stare into a mostly empty restaurant. When
staff aren’t working, the restaurant is losing money, and the wait staff aren’t earning
tips. Without a full income from waiting tables, the better wait staff move to busier
jobs, so the quality of workers is suffering from this poor scheduling. Using what

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130 NELStrategic Human Resources Planning

you know about forecasting demand, what advice would you offer to solve this
scheduling issue?

2. The Delphi technique and the nominal group technique (NGT) are often used to
facilitate creative and innovative solutions to HR demand issues. What are the
similarities and differences between the two methods? List the conditions associated
with successful employment of each of these two demand forecasting techniques.

3. Ratio or trend analysis can be a very effective method for determining HR demand.
Identify a wide variety of relevant indices that can be used for this demand-fore-
casting technique in different organizational contexts, including public not-for-profit
organizations, as well as in diverse industrial settings in the private sector.

EXERCISE: SCENARIO PLANNING
The question: Will undergraduate university courses in Canada move more toward online
course offerings in the next five years, or will there be a gradual reduction in online
courses?

a. On your own, or in groups of 4–5 people, write down all the factors that you
can think of that might influence the move toward increasing or decreasing
the use of online courses. Write each factor on a separate sticky note. Think of
how political, economic, environmental, social, technological, demographic,
and legal/regulatory issues could influence the move toward or away from
online courses over the next five years. Write each factor down as you think of
it, and do not critically examine the factors yet.

b. Look at your factors, and move the sticky notes into groups of factors that
form natural clusters. Give each cluster a title.

c. Select the two clusters that you think have the potential to have the most
impact on the decision to increase online course offerings and that are also
unpredictable.

d. Now stretch these two clusters out. Place the two extremes of the first cluster
at either end of the horizontal axis, and the two extremes of the second cluster
at each end of the vertical axis. This will leave you with four quadrants: the
top right quadrant will represent a world in which both clusters are at the
extreme positive end of their scales. The bottom right quadrant will represent
a world in which the horizontally placed cluster is at the top end of its scale,
but the vertically placed cluster is at the negative end of its scale, and so on.

e. Look at the world that is represented by each quadrant, and describe what
each world would be like. How does online education fit into this world? Give
each world its own representative name.

f. Describe the types of strategies, resources, and activities that would be neces-
sary for a university course to be successful in each of these worlds.

g. Look at the strategies, resources, and activities that are common to all four
worlds. Any attributes that are common to all four worlds are likely to lead
to success in any outcome that is close to what your scenario planning
model presents. Therefore, these are the attributes that universities should

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131CHAPTER 5 Determining HR Demand NEL

be focusing on today so that they can be successful in presenting strong pro-
grams and class environments to students in the near future.

h. Discuss your findings with other groups or individuals. How are they similar,
and how do they differ? What were the critical differences in your assump-
tions that affected the outcomes?

CASE STUDY ONTARIO POWER GENERATION

Ontario Power Generation is a very large North American power company, with a
generating capacity of more than 16 000 megawatts. OPG provides power to more
than half of all Ontario homes and businesses. With just over 10 000 employees,
OPG produces electricity using a combination of hydroelectric, thermal, nuclear,
biomass, and wind-powered stations. Roughly 95 percent of the power produced
by OPG in 2013 came from hydroelectric and nuclear sources, which produce zero
emissions that contribute to smog and climate change.

The power-producing industry is characterized as having fairly stable demand,
although the regulatory and social environment in which power companies operate
is going through a period of change. For example, OPG is ahead of the Ontario
Ministry of Energy–mandated schedule to close its coal-fired generating stations.
These stations have been shuttered, but not sold, and may one day be converted to
natural gas–fired stations. OPG’s Pickering nuclear power stations will be shut down
by 2020, while phasing in greater use of wind, solar, bio-energy, and hydroelectric
power over roughly the same period.

Consumer demand for power is dynamic, with daily, weekly, and monthly
peaks, as well as seasonal differences in demand. OPG must anticipate power
demand and determine how to satisfy its total power demand with power from
different stations. Each type of power station has its own unique operating require-
ments for technicians, and so the HR demand for technicians depends not only
on total power needs, but also the mix of power stations in use at any given time.
Because the company has varying skill requirements for its technicians, OPG seeks
to hire technicians with the basic engineering skills qualifications, and then provides
extensive training. The training period lasts up to five years, which indicates how
strategically important technicians are to OPG. The forecasting of demand for
technicians must account for these cyclical differences in power demand in order
to prevent over- or understaffing. In addition to these demand requirements, the
utility must plan for future requirements given the expected growth in the demand
for electricity over time, and its own strategic initiative to reduce total full-time
employment levels by roughly 20 percent from its 2011 levels over a five-year period.

Organizational planners have many years of prior sales and consumption data
from which to draw forecasts. The utility also has a management team that has deep
knowledge of the regulatory and political landscape, the energy sector in general,
and the electricity market in the province. Other attributes that may influence the
demand for energy and therefore the demand for technicians include the extent to
which third-party (consultant) services are utilized, the total capital budget of the
company, the total number of kilowatt hours generated, the kilowatt hours produced
by each station, the type of power stations available for use, and sales revenues.

(continued )

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132 NELStrategic Human Resources Planning

QUESTIONS

1. Assuming that OPG wishes to improve its HR demand forecasts for
technicians over a three-year period, do you think that OPG should
use a quantitative or qualitative type of model to assess its demand for
technicians?

2. What specific form of quantitative or qualitative model do you think
OPG should use?

Sources: OPG Annual Report 2013; OPG employment website; Meehan, R.H., and Ahmed, S.B. (1990).

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133CHAPTER 5 Determining HR Demand NEL

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k _w� `c� qsnnpcqqcb� dpmk � rfc� [email protected] � _l b-mp� cAf_nrcp&q’,� Lcjqml � Cbsa_rgml � pcqcpt cq� rfc� pgefr� rm� pck mt c� _bbgrgml _j� aml rcl r� _r� _l w� rgk c� gd� qs`qcoscl r� pgefrq� pcqrpgargml q� pcosgpc� gr,

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k _w� `c� qsnnpcqqcb� dpmk � rfc� [email protected] � _l b-mp� cAf_nrcp&q’,� Lcjqml � Cbsa_rgml � pcqcpt cq� rfc� pgefr� rm� pck mt c� _bbgrgml _j� aml rcl r� _r� _l w� rgk c� gd� qs`qcoscl r� pgefrq� pcqrpgargml q� pcosgpc� gr,

NEL

CHAPTER

6

CHAPTER LEARNING OUTCOMES
AFTER READING THIS CHAPTER, YOU SHOULD BE ABLE TO:

• Understand the relationship between demand and supply forecasting techniques
in the HR planning process.

• Recognize the importance of effectively managing the supply of human capital.
• Comprehend the importance of segmenting human capital to better understand

where human capital plays a critical role in implementing strategy and how to
manage the supply of that human capital.

• Discuss and evaluate the advantages and disadvantages of the following specific
methods of determining external and internal supply:
a. Skills and management inventories
b. Human capital segmentation
c. Markov models
d. Linear programming and simulation
e. Movement analysis
f. Vacancy/renewal models

• Recognize when an HR gap may be filled through substitution strategies such as
automation, or when the gap may be attributable mostly to the bullwhip effect.

ASCERTAINING HR SUPPLY

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NEL136 Strategic Human Resources Planning

// INTRODUCTION
In the preceding chapter, we examined a variety of methods used to forecast HR demand.
Many of these procedures (e.g., trend analysis, simulation, the Delphi technique, and
NGT) can also be used to determine the supply of human capital.

Human capital must be obtained from a source that is either internal to the orga-
nization (current employees) or external (individuals currently not employed by the
organization), or, more commonly, some combination of these. Many organizations give
preference to internal supply, because selecting these individuals for training and devel-
opment, and subsequent promotion, enables the organization to reinforce employee
loyalty and performance. Other reasons for giving preferential consideration to your
own workforce to fill job openings include the following:

1. Current employees are already socialized to the norms, rules, and procedures
of your organization, and so organizational fit is ensured.

2. The employer possesses detailed knowledge (as listed on its HRMS skill
inventories) of the employees’ performance and KSAs over time (e.g., work
history and experience).

3. Internal labour markets provide employees some protection from economic
downturns, as employees can move from one job type to others.

Internal supply
Existing employees who
can be retrained, pro-
moted, transferred, or
otherwise redeployed to
fill anticipated future HR
requirements
External supply
Members of the work-
force not currently
employed by the firm,
who are currently
undergoing training,
working for competitors,
members of unions or
professional associa-
tions, in a transitional
stage, between jobs, or
unemployed

Economists who analyze labour supply will often look
at unemployment rates by province, by occupation, and
by designated group. These numbers give them an idea
of where potential supplies of labour exist. Canada’s
Aboriginal population is the fastest growing population
in Canada, which means it is a potential source of
labour now and in the decades to follow. However, in
2006 Aboriginal people had an unemployment rate of
nearly 15 percent compared to about 6 percent in the
general population. This high rate of unemployment is
due to particularly low levels of education and a younger
demographic. And yet, nearly 80 percent of employers
believe that the employment of Aboriginal people is
necessary to deal with labour shortages.

What can employers do to attract and retain this pool
of labour? PTI Group worked with Aboriginal communities in
Alberta to identify barriers to employment. One barrier was
the lack of transportation, which PTI solved by providing
buses to drive employees between the reserves and the

work sites. PTI also created a training program at the camp,
consisting of classes and practical experience. All the trainees
in the first cohort are now employed by the company.

To address problems of low literacy, lack of work
experience, and weak technical skills, employers such as
Alberta-Pacific Forest Industries offer job placement and
apprenticeship programs that provide practical training
and mentorships. Retention of this demographic is aided by
workplace programs such as extended leaves during the
traditional hunting season. All employees take a cultural
training program, Aboriginal 101, to decrease stereotyping
and racism on the job. Al-Pac states that these programs
work and reports a very low 5 percent turnover among
this group.

Sources: Aboriginal Peoples in Canada, Designated Group Profiles 2006:
www.labour.gc.ca/eng/standards: Retrieved 29/07/2014; Silliker,!A.

“Aboriginals key to tackling labour shortage” Canadian HR
Reporter, 25, 19, Nov 5, 2012, p. 11; and Klie, S. “Aboriginals a strategic

imperative,” Canadian HR Reporter, 24, 8, April 25, 2011, pp. 1, 8.

ABORIGINAL PEOPLE: A GROWING LABOUR SOURCE

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NEL 137CHAPTER 6 Ascertaining HR Supply

// SEGMENTING THE INTERNAL SUPPLY OF
HUMAN CAPITAL
With the popularity of news headlines focusing on the skills gap for highly skilled
workers, and the forecasted labour shortage issues in Canada in the coming decade, it
is clear that organizations can benefit from placing increased importance on the man-
agement and internal supply of human capital. What this implies is that rather than
focusing solely on recruitment when a need is identified, firms should start looking at the
kinds of human capital skills or competencies that are critical to solving organizational
problems or that are key to implementing the firm’s strategy, and implement policies
that aim to retain and develop these critical skills.

However, employees working in the same job, who hold similar sets of skills, may
have very different objectives when it comes to how the current job fits into their own
career objectives. When different groups of employees work in the same job but have
different work or career preferences, it may be possible to retain or develop more than
one of these employee segments with HR programs. Consider a salesperson working
on the floor at one of the major clothing sales chains such as The Gap, or J. Crew. Some
of these employees are there for the long haul; they love the company, its products, its
values, and the experience that it provides for its customers. These employees would
love to work for the company for as long as they can imagine, and possibly even manage
their own store one day, or buy their own franchise. But there are several other segments
of employees working the floor as well. Some employees are using the job to help pay
their way through school, and intend to move into a different field once they graduate.
Other employees don’t want a full-time job, and enjoy the casual nature of their work as
well as the opportunity to be flexible with the number of hours they work per week and
when they work those hours. Still other employees might be retired, and are looking for
part-time work that provides a social experience and the opportunity to be active. Each
of these groups of employees can be segmented based on its unique combinations of
preferences for the employment contract at the firm. All these employee segments add
value to the firm, and excellent workers can be found in all segments. However, if the
company is recruiting for, selecting, providing benefits, and rewarding only the segment
that strongly identifies with the firm for the long haul, then it is ignoring the needs and
desires of all the other existing human capital segments. If the firm only hired sales
staff from the long haul segment who want to work full time and progress through the
company, then it is creating a host of unforeseen problems relating to finding people to
work part-time or odd hours, and career development problems, as there is no way to
provide developmental opportunities and career progress for all the sales staff.

John Boudreau suggests that firms should understand each of the employee segments
that comprise their human capital contingent, and provide HR practices that appeal
to each of these segments in unique ways.1 That way firms can influence the supply
of human capital from each of these segments in ways that ensure a strong supply of
human capital. Boudreau proposes three questions to understand and influence supply:

1. What are the critical human capital segments?2 In order to answer this question
HR practitioners must have a clear understanding of the organizational activi-
ties that bring value to the customer. These activities are what the firm does
to differentiate itself in the market, and the employees who are involved in

Employee
segmentation
The grouping of
employees based on
characteristics that
are relevant to the
employee experience
such as career prefer-
ences, demographics,
work—life prefer-
ences, or benefits

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NEL138 Strategic Human Resources Planning

the performance of those activities and the delivery of that value are critical
to firm success. HR planners should determine the most relevant attributes
to use as a basis for segmenting critical human capital; these attributes could
take many forms, including differences in preferences for benefits, flexible
work options, or differences in reasons for working at the firm. Knowing
how to appeal to different segments of critical human capital will lead to a
stronger applicant pool and help the firm design policies that appeal to each
employee segment as needed. The second question that Boudreau proposes
that firms ask in order to influence the supply of its human capital is

2. What response do we need from each of these segments?3 Let’s take for example
a firm that expects the demand for HR managers to increase along with
expected organizational growth. After graduating from college or university,
it might take an HR professional five years or more working within the HR
function to develop the skills to become an HR manager. Another path to
becoming an HR manager in the firm might be to work for five years within
one of the business lines of the firm, formalize one’s HR knowledge in an
HR-focused Master’s degree program, and then move into the HR manager
role. This path might take five to seven years. By segmenting these human
capital requirements by demographics, the firm can understand how to influ-
ence the supply of HR managers over the next decade by determining what
proportion of existing HR managers may be considering retirement, how
many recent graduates are entering the HR function, and what proportion
of HR managers are coming from the business lines with an advanced HR
degree.

With an estimate of demand for HR managers, the firm can model
whether and how to meet that demand from internal sources. For example,
if policies were put in place to persuade 25 percent of HR managers who
are contemplating retirement to remain in the job for an extra two to five
years, and if policies were used to increase the proportion of millennials in
the applicant pool by 10 percent, and if managers outside the HR function
who were interested in working in HR were offered a subsidy to help pay
for an advanced HR degree part-time while working, how would the supply
of HR managers change over the next five years? The final question to ask
when considering how to influence the supply of human capital is

3. What features of the employment deal create the best response at the lowest cost?4
Looking at our example of influencing the supply of HR managers by
segmenting along demographics, we see that there are different costs
associated with each of our options. We should include among those options
external hiring, where we seek to hire candidates who already possess all
the skills or competencies needed to fill the HR manager job. The costs
associated with each of these options can be calculated, and the question
becomes a relatively simple optimization problem of reducing the risk of
running low on HR managers by combining our options to arrive at the
lowest cost and lowest risk solution.

While the HR manager job was segmented by demographic, the salesperson job
at the clothing store discussed earlier was segmented by other features of the employ-
ment contract. By segmenting along preferences for organizational identification and
commitment, the clothing store can optimize its supply of full-time, part-time, and

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NEL 139CHAPTER 6 Ascertaining HR Supply

occasional workers to balance scheduling needs. Segmenting workers along unique
sets of attributes that make the employment contract attractive in order to influence
the supply of human capital allows forecasters to better understand and model how
to influence the supply of each employee segment. Policies such as recruitment and
retention strategies that appeal to these unique segments provide the means through
which planners can influence the supply of human capital.

When firms do not have the policies in place or the resources to provide an adequate
supply of human capital from within, adequate supply must be found outside the firm.
When supply is inadequate, the result could be due to a labour shortage, where there
simply are not enough workers for the number of jobs available, or due to a skills gap,
where there are insufficient numbers of workers who possess the skills necessary to
perform the job (see HR Planning Today 6.1). We now turn to an examination of some
of the mechanisms that influence the external supply of human capital.

Skills gap
A situation in which the
supply of a particular
form of human capital
available to the firm is
inadequate to address
the demand

HR PLANNING TODAY 6.1

WHAT ABOUT THE SKILLS GAP?

Canadian news stories about the skills gap lead us to
believe that there is a shortage in the supply of high skilled
Canadian labour. A 2016 survey for the Canadian Internet
Registration Authority found that despite having competi-
tive recruitment and selection practices, almost 50 percent
of the IT companies surveyed claimed they had trouble
filling IT positions in the last year. Few organizations have
the capability to measure the cost of not hiring a worker
for a year, and if they could, they might take stronger steps
to avoid these kinds of gaps.

Are skills gaps real, and if so, what are the causes
and cures? Some research suggests that the skills gap
is limited to particular geographic regions or knowledge
sectors. For example, the insurance industry lacks suffi-
cient numbers of claims managers, claims handlers, and
actuaries, and some skilled trades such as boilermakers,
machinists, and heavy equipment handlers currently face
a skills gap. However, for many jobs, research suggests
that a large portion of the gap may be brought on by orga-
nizations. Firms that do not have a development pipeline,
that spend little on training, and that are dependent on
external hiring for most skilled workers are especially at
risk for not being able to hire adequate numbers. Another

contributing factor to an inflated gap is in the recruitment
and hiring practices popular in firms today. Rather than
selecting based on knowledge, skills, abilities, and apti-
tudes derived from on job analysis, many firms prioritize
work experience as a minimum qualification. When an
organization is looking for an applicant with three to five
years of experience in the job, how realistic is it to expect
that an employee who has been working the same job but
in another organization for three to five years will be willing
to forego their firm-specific human capital to go work for
roughly the same pay in a different organization? If firms
want to pay the market rate or lower for an employee with
several years of experience at the job, it is not surprising
that the job advertisement yields an applicant pool that
does not match its requirements.

Firms that want to avoid unfilled jobs over the long
term need to align their strategic activities with their critical
talent segments, and incorporate training, development,
and retention strategies to reduce their need for external
hiring. Firms need to appeal to their critical talent segments
with HR practices that draw a larger applicant pool, and
should consider paying above market wages for the talent
segments that are critical to implementing firm strategy.

Sources: Adapted from Cappelli, P. (2012). Why good people can’t get jobs: The skills gap and what companies can do about it. Wharton Digital
Press: Philadelphia; Anonymous, June 2016. “From broadband access to smart economies: Technology, skills and Canada’s future.” Canadian
Internet Registration Authority; and https://cira.ca/sites/default/files/public/Broadband-Internet-access-across-Canada-en.pdf

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NEL140 Strategic Human Resources Planning

// HR SUPPLY PROGRAMS
THE ROLE OF EMPLOYERS IN INFLUENCING SUPPLY
If employers cannot find a sufficient supply of labour for certain jobs, they can either
change the nature of the job, train workers themselves, or look at other labour pools. Jobs
that are difficult to fill can be made more attractive. In one country, locals were unwilling
to apply for construction jobs because they saw the work as dangerous, difficult, and
dirty, in an unsafe and uncomfortable environment. Where possible, companies could
try to either change the work conditions or change the perceptions of these jobs. Alter-
natively, managers could train the types of workers that they need. For example, a group
of manufacturers, the Ontario Manufacturing Learning Consortium, are hiring young
unskilled people and training them (with both classroom and on-the-job experiences) for
jobs such as machinists.5 However, Canadian organizations have a relatively poor track
record in training employees, compared to other countries. According to a survey of
executives in 27 countries, only 38 percent of Canadian businesses offer training to teach
technical skills to employees in the highly desirable STEM areas (science, technology,
engineering, and math), compared to 51 percent in the United States and even more in
Columbia and Malaysia. According to Canadian executives, the problem is that they
don’t know what skills the workforce will need to remain competitive in the near future.6

OTHER LABOUR POOLS
This chapter opened with examples of companies hiring Aboriginal people in the work-
force. Organizations facing shortages could make targeted efforts to recruit from the labour
pools of the four designated groups, or other stigmatized groups. Home Depot Canada

Workers who have retired are a good source of labour particularly if the schedules are flexible.

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NEL 141CHAPTER 6 Ascertaining HR Supply

won an award for its positive programs for hiring and retaining mature workers. Only
8 percent of Canadian organizations had plans to hire retired workers (see HR Planning
Today 6.2). Another employment source that has only recently begun to be utilized is
the neurodiverse community. Neurodiversity refers to neurological differences that are
recognized as natural human variation. These differences include descriptors such as
autism, and Tourette syndrome.7 Organizations such as SAP have made commitments
to increasing their hiring rate of neurodiverse individuals to reflect the observed repre-
sentation in the population, which is around 1 percent.8 In order to hire neurodiverse
individuals or members of any of Canada’s protected groups, best practices involve
performing job analysis to understand all job-relevant attributes of the work, developing
science-based selection practices that seek to reduce bias and control for other errors, and
providing realistic job previews so that working conditions are well understood before-
hand. Job analysis plays a critical role in removing bias in expectations around what is
required to perform a job, and changing mental models around the general attributes
necessary for the job or workplace that may persist and that do not hold any relation to
actual job requirements.

INFLUENCE OF GOVERNMENT PROGRAMS
Governments control the supply of labour in many ways. Provincial governments,
for example, determine the number of places available in professional programs such
as nursing, and trade apprenticeships, such as electricians. Working through their
employer associations, organizations could lobby the government to increase the
number of training programs or students. The government also plays a key role in
determining the number of immigrants admitted to Canada. By increasing the spaces
available to qualified professionals and tradespeople, the government can alleviate
demand for these workers in targeted occupations. However, academics state that these
are short-term solutions. While it seems sensible to increase the number of pipefitters
and welders through government programs, what happens 20 years later when there
are no jobs for these workers? This was the case for construction workers in Alberta
(1982) and auto workers in Ontario. What is needed, they argue, is a flexible, adapt-
able worker.9

HR PLANNING TODAY 6.2

ATTRACTING OLDER WORKERS

By 2030, roughly 23 percent of Canadians will be 65 years
old or older. A survey of 1500 older workers (50 and over)
revealed that older workers desire many of the same
things that other workers rank as important:

1. Flexible working options
2. Training and development

3. Job design
4. Recognition and respect
5. Performance evaluation (especially one that is free

of age bias)
6. Compensation

Sources: Ben-Hur, S. “Viewpoint,” Training Journal, November 2012, pp. 8–9; Armstrong-Stassen, M., “Encouraging Retirees to Return to the Work-
force,” Human Resource Planning, 29, 4 (2008), 38–44; and http://www.statcan.gc.ca/daily-quotidien/140917/dq140917a-eng.htm.

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NEL142 Strategic Human Resources Planning

But there is also a shortage of Canadians who are willing to do “hard” labour (such
as working in the fields) or low-paying service jobs. For example, the 2011 Workplace
Survey by Statistics Canada showed that there were 395,000 unfilled jobs, mostly in
Ontario, Alberta, and Quebec.10 The Temporary Foreign Workers Program was intended
to increase the number of immigrants to fill these types of jobs, but was stopped due
to abuse by some employers.

HR RETENTION PROGRAMS
Any presentation on HR supply would be incomplete without a discussion of the need
for organizations to monitor and control levels of absenteeism and employee turnover.
It may be helpful to think metaphorically of the organization’s supply of employees as
the level of water in a bathtub. Even with the water taps fully open and water pouring
into the tub, if the drain plug is not in place, inevitably we will soon be looking at an
empty tub! Organizationally, even if we are highly successful in recruiting a large number
of highly skilled applicants (a situation that is increasingly rare for most organizations,
given demographic and competitive factors), if we are unable to retain experienced,
high-performing employees, we face dire consequences, not only in the short run in
failing to achieve desired organizational goals but also, perhaps even more critically,
in an inadequate HR supply and lost opportunities for future succession. Apart from
normal levels of retirement and voluntary turnover, high levels of involuntary turnover
normally signify a mismatch between the individual and the organization.11 Attention
should be paid to selection procedures to ensure that proper skills and competencies are
possessed by the individual, as well as to orientation and training and development in
ensuring that employees are provided with clear guidance with regard to their employ-
ment and desired performance levels.

With labour shortages projected for the next decade, retention programs are no
longer an option for most North American companies; they are fast turning into a key
requirement for organizational survival.12 The costs of replacing current workers and
acquiring new ones can be staggering. Apart from “hard” costs (e.g., advertisements, head-
hunter and recruiting fees, interview training and travel costs, administration expenses,
cost of lost production, bonuses or increased salaries to act as inducements to join, and
so on), there are also the “softer” elements (such as lost business and customer con-
tacts, decreased quantity or quality of work due to training and “learning curve” gaps,
orientation and training time, decline in team morale and productivity, and increased
turnover due to the “follow me” effect) to consider. It is estimated that the cost of
replacing a trained worker ranges from 70 to 200 percent of the departing person’s
annual salary.13 Organizations that demonstrate flexibility and a genuine effort to assist
their employees are perceived to be more attractive places to work (see HR Planning
Today 6.3 for an example of how one company seeks to avoid lay-offs). Retention can
be greatly facilitated by offering effective communication programs; maintaining an
enjoyable and collegial work atmosphere; designing meaningful jobs; formulating and
administering performance and compensation systems that identify and differentially
reward better performers based on clearly communicated criteria; and offering more
flexible and attractive work arrangements (e.g., flextime, telecommuting, cafeteria-style
benefit plans). Mentoring programs have also been found to be highly effective for
retention through positively influencing individual commitment and potential for career
success, and thereby reducing turnover intentions.14 The need is clear, as is the fact that

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NEL 143CHAPTER 6 Ascertaining HR Supply

human capital is a source of competitive advantage that makes the difference between
organizational success or failure.15

Organizations are beginning to apply operations and marketing principles by seg-
menting human capital according to sets of desirable employment attributes. In the
same way that firms have applied ideas such as fast response and mass customization
to consumer products, so too are firms looking at mass customizing the HR experi-
ence based on human capital talent segments. Mass customization can be seen every
day in products like the Apple Watch, where Apple has gathered market intelligence
to determine that customers tend to care about some combination of watch face size,
watch material, strap material, strap colour, and price. Customers looking to buy an
Apple Watch can select any combination of attributes they desire and build their own
unique Watch that suits their personal preferences. Mass customization in HR refers
to the way in which the major attributes that influence the employee relationship with
the firm can be blended and moulded to suit the individual needs of the employee.
Not only offering policies such as flexible work arrangements, core working hours,
telecommuting, cafeteria-style benefits, but allowing employees the individual freedom
to select how to receive these policies, and even the option to select the mix of fixed
and incentive pay all contribute to mass customizing the employment experience.
Mass customization of HR is intended to help maximize the employee experience and
ultimately enhance retention. Organizations are increasingly facing HR supply and
retention problems, which will prove increasingly costly given looming demographic
shortages in the labour force. (See HR Planning Notebook 6.1 for more recommenda-
tions for retaining employees.)16

Mass customization
in HR
The ability to customize
HR practices at the
employee level effi-
ciently and at low cost

HR PLANNING TODAY 6.3

RETENTION OF HIGHLY SKILLED WORKERS

Some sectors, such as construction, experience cycles of
high demand followed by low market demand for products.
The typical policy of companies in these sectors is to lay
off workers during the slump, and hope to rehire them
when demand resumes. However, experience has shown
that some of these workers become discouraged and find
other jobs. If they were easy to replace, this would not be a
problem. But some of these workers are highly skilled, such
as mechanics, with five years of apprenticeship and experi-
ence forging them into productive employees. Companies
also find that during, for example, a nine-month layoff,
employees’ skills begin to deteriorate and they must be
retrained upon their return to work. So, what is the solution?

Hitachi Construction Truck Manufacturing in Guelph,
Ontario, thinks it knows. This company manufactures
large trucks used in mining and employs about 200
people in manufacturing and another 180 in the office.
The company wants to institute a no-layoff policy and
keep their skilled workers employed during slumps.
Toyota has the same policy for its workforce in America
and plans, during a 14-week layoff, to keep workers
and assign them to training and other activities at a
cost of $50 million. Recognizing the cost of a no-layoff
policy, Hitachi has asked for financial help from the
government.

Sources: http://lawofwork.ca/?p=149; Keenan, G. “For Hitachi, Keeping Skilled Workers Is Key,” The Globe and Mail, September 8, 2014, B7; and
http://www.guelphtribune.ca/news/hitachi-big-on-future-in-guelph, retrieved October 23, 2014.

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NEL144 Strategic Human Resources Planning

HR PLANNING NOTEBOOK 6.1

RECOMMENDATIONS FOR RETAINING EMPLOYEES

Organizations cannot afford to lose experienced, talented
employees. Given that highly qualified, high-performing
staff will always have alternative employment options,
what are some of the steps organizations can take to help
attract and retain talented employees? The following rec-
ommendations are drawn from the research literature:

1. Train managers in strategies for the retention of
employees, and hold them accountable for retention.

2. Pay is not the main reason for losing talent. Pay atten-
tion to “toxic” bosses and co-workers, bad manage-
ment practices, and a lack of autonomy and respect
at work.

3. Implement flexible working arrangements to facili-
tate work–life balance (e.g., flexible work hours,
compressed workweek, telecommuting, job sharing,
daycare centres, and so on).

4. Reward fairly, consistently, and differentially on the
basis of performance and results. Give recognition to
employee preferences for different types of work ben-
efits (time off, nonmonetary rewards such as travel
or goods, tuition assistance, pension plans, life insur-
ance, and so on).

5. Hold regular feedback and career development dis-
cussions with your employees.

6. Recognize that talented, highly motivated employees
do not view training as a discretionary item that
should get cut during the first round of annual budget
reviews!

7. Deal with “slackers” and underperformers! Talented
employees resent being burdened with additional
stress and workload.

8. Reward organizational seniority in addition to
rewarding performance.

9. Identify “high turnover risk” occupations, classifica-
tions, and personnel, and develop appropriate talent
retention strategies.

10. Develop a managerial academy to teach talented
employees the technical and interpersonal skills
necessary to assume higher managerial positions in
the future.

11. Review and pare to a minimum the following potential
“dissatisfiers”: rules, regulations, micromanagement,
policy manuals, meetings, and so on.

12. Take action on talent management; don’t just meet,
discuss, or prepare a report.

Employee retention will soon become the number-one
priority for HR professionals.

Sources: Adapted from F. Frank and C. Taylor, “Talent Management: Trends That Will Shape the Future,” Human Resource Planning, Vol. 27, No. 1
(2004): 33–42; J. Greenwald, “Benefits Programs Aim to Keep More Moms in the (Work) Family,” Business Insurance, Vol. 38, No. 5 (2004); “The
Return of Work/Life Plans,” HR Focus, Vol. 81, No. 4 (2004); K. Hilton and J. Soubik, “Case Study: Pennsylvania’s Changing Workforce: Planning Today
with Tomorrow’s Vision,” Public Personnel Management, Vol. 33, No. 4 (2004): 459–474; C. Trank, S. Rynes, and R. Bretz, “Attracting Applicants in the
War for Talent: Differences in Work Preferences Among High Achievers,” Journal of Business and Psychology, Vol. 16, No. 3 (2002): 331–345; M. Hay,
“Strategies for Survival in the War of Talent,” Career Development International, Vol. 7, No. 1 (2002): 52–56; and S. Langan, “Finding the Needle in
the Haystack: The Challenge of Recruiting and Retaining Sharp Employees,” Public Personnel Management, Vol. 49, No. 4 (2000): 461–478.

// METHODS FOR MODELLING THE SUPPLY
OF!HUMAN CAPITAL
SKILLS AND MANAGEMENT INVENTORIES
The first step in supply analysis is an examination of the number and capabilities of cur-
rent employees. Skill inventories and management inventories contain information on
the capabilities of your employees.17 A skills inventory is an individualized record held

Skills inventory
An individualized
personnel record held
on each employee
except those currently
in management or
professional positions

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NEL 145CHAPTER 6 Ascertaining HR Supply

on each employee except those currently in management or professional positions. Typi-
cally, a skills inventory contains information for each individual on the following areas:

1. Personal information (e.g., name, employee number, job classification and
compensation band, emergency notification, and telephone number)

2. Education, training, and skill competencies (e.g., certificates, licenses, and
diplomas or degrees completed, including the area of specialization, dates of
attendance, and names of the institutions attended)

3. Work history (e.g., date of hire, seniority, current job and supervisor, and
previous jobs held in the organization and the dates associated with them)

4. Performance ratings (i.e., a numerical score of the employee’s history of
performance in jobs in the organization)

5. Career information (e.g., future jobs desired by employee and those recom-
mended by supervisors)

6. Hobbies and interests (including community and volunteer associations),
and willingness to relocate.18

This skills inventory record is entered into an organization’s HRMS database and
can be searched when looking for people with the skills and competencies required by
a specific job. For this reason, skills inventories must be kept current, and employees
should be given frequent opportunities to update or correct their personal entries; other-
wise, an employee may not be considered for a job that he or she could fill successfully.

Management inventories can be considered to be enhanced skills inventories,
because they contain all the above information and the following:

1. A history of management or professional jobs held
2. A record of management or professional training courses and dates of

completion
3. Key accountabilities for the current job (i.e., organizational resources,

including the size of the budget controlled, number of subordinates,
important organizational outcomes for which the incumbent is primarily
responsible)

4. Assessment centre and appraisal data
5. Professional and industry association memberships

Only when an organization has a properly maintained HRMS, complete with the
skills and management inventories described above, is it really able to assess correctly
the numbers and competency levels of its current workforce. In this way, HR planners
can determine the organization’s workforce strengths and weaknesses and plan training
and development courses accordingly, while noting which job openings must be filled
from external sources because current employees lack the skill competencies required.

MARKOV MODELS
Markov models are the most popular technique used for contemporary supply-side
HR planning applications in medium to large organizations.19 Organizational size is a
factor in the decision to use Markov modelling because the process involves estimating
the probability of moving from one job to another. Estimates of employee movement

Management
inventory
An individualized
personnel record for
managerial, profes-
sional, or technical
personnel that includes
all elements in the
skills inventory with the
addition of information
on specialized duties,
responsibilities, and
accountabilities

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NEL146 Strategic Human Resources Planning

can become highly unreliable in small firms. These models are widely used in both
educational and human capital planning processes.20 Furthermore, they have been
found to be most useful in stable work environments where career paths are better
defined. A Markov model, also referred to as a probabilistic (using probabilities of various
movement options) or stochastic model,21 determines the pattern of employee movement
throughout an organization’s system of jobs using a set of mutually exclusive states
for movement into or out of a particular job.22 Markov analysis produces a series of
matrices that detail the various patterns of movement to and from the wide variety of
jobs in the organization. As such, they provide a method to model the flow of human
capital between jobs within the organization to give a deeper understanding of how
employee movement affects the supply of human capital beyond a simple estimate of
turnover rates. When considering employee movement patterns in the organization, there
are five mutually exclusive states in which an employee can reside:

1. Remaining in the current job
2. Promotion to a higher classified job
3. A lateral transfer to a job with a similar classification level
4. Exit from the job (e.g., termination, layoff, voluntary leaving by the

employee)
5. Demotion (which is relatively rare)23

Markov models do not examine individual employees but instead examine overall
rates of movement between various job levels, and this movement between jobs is based
on historical movement patterns.24 It is normally assumed, for calculation purposes, that
the pattern of employee movement is relatively stable over time. If this is not the case,
then adjustments have to be made to the historical data to allow them to be used for
HR planning in the present day. Markov model data should be based upon movement
during “typical” business operations. However, if environmental conditions change dra-
matically, the information should be adjusted, using the HR planner’s best judgment. It
is important to note that Markov techniques depend on stable transition probabilities,
so dynamic and unstable environmental scenarios may preclude the effective usage of
Markov models.25 See Table 6.1 for an example of a Markov Model.

There are three main steps to using a Markov model for HR planning purposes.26
First, collect historical data on mobility rates between jobs in the organization. An
advantage to Markov models is that they do not need to be complicated. Many organi-
zations collect data on turnover rate, promotion rate, and rates of lateral transfers and
demotions. Second, based on these data, develop matrices to forecast future movement
between jobs. Third, use the forecasts of the model to analyze HR policies and programs,
and instigate the necessary adaptive measures.27

Let’s use the example Markov analysis in Table 6.1 to gain a better understanding of
how the analysis works. The matrix shows five jobs over two time periods; the current
state, which is shown as Time 1 and is represented by the first column of numbers; and
the expected future state, which is shown as Time 2 and is represented by the remainder
of the matrix. At Time 1, there are 100 kitchen staff, 150 servers, 50 hosts etc., for a total
of 400 workers. The rows of the matrix represent the probability of movement from one
job state to another from Time 1 to Time 2. The first row, which includes the transitional
probabilities for kitchen staff shows that our historical expectation is that 40 percent of
kitchen staff stay in their job from Time 1 to Time 2, while 10 percent of kitchen staff
move to server jobs, 5 percent of kitchen staff transition to hosts, 15 percent of kitchen
staff transition to food prep jobs, and 30 percent leave the organization. The numbers

Markov model
A model that produces
a series of matrices
that detail the various
patterns of movement
to and from the various
jobs in the organization

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NEL 147CHAPTER 6 Ascertaining HR Supply

below the percentage listings show the expected numbers of employees who will transi-
tion from one job state to another. For example, of the 100 kitchen workers at Time 1,
40 percent, or 40 kitchen workers will remain in the job at Time 2. If we add the total
number of employees down each column we can see the total number of workers for
each job in Time 2. Looking at kitchen workers in Time 2, we expect that 40 will remain
in the job, 15 will come from the server job, and 1.25 from the cook job, for a total of
56.25 kitchen workers expected at Time 2. This means that the supply of kitchen workers
has gone down from 100 in Time 1 to 56 in Time 2, and the firm can look at its expected
demand for kitchen workers in Time 2 to assess the degree to which 56 kitchen workers
represents an expected shortfall. Looking along the columns to see the expected number
of workers that will be in each job at Time 2, we can see that the cook job has gone from
25 cooks in Time 1 to 32.5 cooks at Time 2. This is a different kind of problem that sug-
gests that the career path for food prep workers is leading to a surplus of cooks. Based on
these Markov model results, we can develop HR policies and redesign jobs to overcome
the gaps and surpluses that are apparent as a result of the Markov analysis.

By using employee movement data from the recent past, it is possible to calculate
transitional probabilities, or the likelihood that an individual in a specific job will be
promoted, terminated, moved laterally, be demoted, or stay in the job, normally one
year into the future. The relevant period, or length of time between Time 1 and Time 2
is highly dependent on the speed at which movement occurs in the firm. If the period is
too short, then too few transitions have occurred and the model does not reveal much
of interest. If the period is too long, then too many transitions have occurred, and the
model does not represent reality. By multiplying the total number of employees or
positions in a particular job by the associated probabilities for each of the five possible
movement scenarios, the HR planner derives numerical data on employee flow patterns
throughout the organization, and between various job levels.

TABLE 6.1

MARKOV MODEL

TIME 1 TIME 2

KITCHEN SERVER HOST FOOD PREP COOK EXIT

KITCHEN 100 40%
40

10%
10

5%
5

15%
15

30%
30

SERVER 150 10%
15

60%
90

5%
7.5

25%
37.5

HOST 50 25%
12.5

60%
30

15%
7.5

FOOD PREP 75 10%
7.5

65%
48.75

20%
15

5%
3.75

COOK 25 5%
1.25

5%
1.25

70%
17.5

20%
5

TOTAL 400 56.25 121.25 42.5 63.75 32.5 83.75

Note: The probabilities (percentages) of various movement options are expressed horizontally and sum to 1 (100 percent).

Transitional
probability
The proportion of
employees, or the
number of employees
who have historically
resided in a given
employment state
divided by the total
number of employees
in the job. The transi-
tional probability of ter-
mination for a job that
has 10 employees and
historically has seen
2 leave every year is
2/10, or 20 percent

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NEL148 Strategic Human Resources Planning

The sequences of movements between various job states are referred to as Markov
chains.28 (Markov chains are derived from the model and can be considered a subset of
the model as they refer to movement sequences between specified job states, not the
overall matrix). Detailed examination of the Markov model enables the determination of
the number of external recruits required at various levels of the organizational hierarchy
to fill openings caused by turnover, termination, promotion, and so on. The Markov
model enables us to determine the specific number of replacements or successors required
for any job family annually, as well as for specified future planning periods (based on
normal attrition assumptions), which can help the HR function to be more proactive in
its external recruitment programs. Additionally, we can calculate the chain of movement
from an entry-level job all the way to the CEO appointment, along with forecast times
of arrival, stay, and departure, in conjunction with breaks in career progression along the
way. In fact, White refers to the length of a vacancy chain (the number of employees who
will move as a result of having to replace one individual) as its multiplier effect, and his
study of U.S. churches showed that for any one retiring minister, a chain of movement for
five subsequent ministers was created.29 The length of an average chain is approximately
three.30 Apart from its obvious appeal for the career planning of individuals who have
upward aspirations in the organization,31 HR planners can use the derived information
to plan when training and development courses, job rotations, and so on should be con-
ducted for a specific group of employees, on the basis of predicted time to move from
their current jobs to target jobs several levels higher in the organization’s hierarchy.32
Therefore, a Markov model has great value for determining the following:

1. The number of employees who move annually, and over specified time
periods, between various job levels

2. The number of external hires that are required by the organization, and
where the specific jobs are needed

3. The movement patterns and expected duration in specified jobs associated
with patterns of career progression for employees in the organization (i.e.,
career paths)33

4. The number and percentage of all starters at a particular job level who will
successfully attain a future target job level by a specified time period34

To summarize the process of Markov analysis, the planner would

1. Begin by determining the list of mutually exclusive states (promotion,
transfer, termination, demotion, or status quo).

2. Develop a matrix of jobs that are linked by career progression or historical
movement, based on the pattern of transitions between jobs.

3. Use historical data to determine the probability of moving from one state to
another.

4. Populate the matrix with an initial distribution of job holders across the
various states of the model.

All this information provides important insights in calculating the most appropriate
balance between training and promoting internal employees on the one hand, and external
recruiting on the other. For example, a Markov model of nurses in rural areas showed
that salary increases and educational opportunities increased the number of nurses in
these otherwise difficult to staff regions (see HR Planning Today 6.4).35 Markov models
provide a relatively straightforward method for providing a snapshot of the flow of human
capital, and for identifying gaps between the demand for human capital and its supply.

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NEL 149CHAPTER 6 Ascertaining HR Supply

LINEAR PROGRAMMING AND SIMULATION
Linear programming is a mathematical procedure commonly used for project analysis
in engineering and business applications. It has utility for HR planners because it
allows us to determine the future supply of human capital based on achieving the best
staffing outcome while taking into account certain constraints such as labour costs.36
Furthermore, conditions such as desired staffing ratios (e.g., the internal/external mix
of employees) can be programmed into the equation for determining HR supply. The
optimum or best supply-mix solution is provided by the model, and the best condi-
tions obviously vary across organizations.37 Some companies may seek to minimize
turnover or total labour costs, while others may seek to achieve an optimum level of
staffing with respect to designated groups (e.g., visible minorities, women, Aboriginal

Linear programming
A complex mathemat-
ical procedure com-
monly used for project
analysis in engineering
and business applica-
tions; it can determine
an optimum or best-
supply mix solution to
minimize costs or other
constraints

HR PLANNING TODAY 6.4

USING MARKOV MODELS TO TEST EMPLOYEE MOVEMENT AND POLICY CHANGES

Markov models are often used to understand and predict
the flow of jobs in an organization; but they can also be
used to predict how jobs move at the industry level, and to
test the effects of policy changes on employee movements.
For example, the persistent shortage of professional health
care workers such as nurses in rural areas is a problem in
many countries, including South Africa. A Markov model
was utilized in an attempt to understand what sorts of
policies to implement in order to increase the number of
nurses willing to serve in rural South African areas and to
retain these nurses longer.

The Markov model was developed using roughly the
same method outlined in this chapter. A set of assump-
tions were developed by the planners that incorporate the
various states nurses could occupy during their career.
These states included working in (1) the rural sector, (2)
the urban sector, (3) the private sector, (4) overseas, (5) a
one-year specialty training course, and (6) departure from
the profession. The time period that was reasonable to
represent movement from one state to another was one
year, and the researchers assumed that once nurses leave
the profession, they do not return. The model itself exam-
ined a typical career of 40 years, from age 25 to age 65.

The difficult part of this model is determining the tran-
sitional probabilities of moving from one state to another.
This involved making many assumptions about the work-
force and combining those assumptions with observations

of past movements. The kinds of information that were
gathered to assist in the assumptions around transitional
probabilities included observations such as the knowledge
that nurses typically specialize in the first 10 years of their
career, that working conditions tend to be better in the
private sector than in the public sector, and that working
conditions are most difficult in rural areas.

The model was then run, making changes to assump-
tions, and modelling policy interventions such as how
movements would change if nurses working in rural condi-
tions were provided with an additional allowance. Looking
at a longer time frame enabled the researchers to model
the short- and long-term effects of policy changes, and
to model the effectiveness versus the costs of various
policies over the long term. While the assumptions that
are used to generate the transitional probabilities require
more simplifying generalizations at the industry level, the
method of generating a Markov model is very similar at
the organizational level. Thus, Markov models can be used
in organizations not just for modelling employee move-
ments between related jobs, but also to model the effects
of policy changes on those movements by incorporating
the assumptions of what the policy changes should do to
the transitional probabilities. After the policies are insti-
tuted, HR professionals can track employee movements
to observe the extent to which their assumptions were
correct, and make further corrections if necessary.

Source: Adapted from Lagarde, M. & Cairns, J. (2012), “Modelling human resources policies with Markov models: An illustration with the South!African
nursing labour market,” Health Care Management Science, 15, pp. 270–282.

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NEL150 Strategic Human Resources Planning

people, and people with disabilities) in all job levels throughout the organization.38 By
providing the optimum level of human capital supply with respect to explicitly defined
constraints or criteria, linear programming enables the calculation of what-if scenarios
by changing or relaxing various model assumptions in order to determine the impact
these changes will have on final numerical requirements for supply, both internal and
external. To use linear programming, assumptions have to be similar to those used in
regression analysis (discussed in Chapter 5), namely that the mathematical model has
to contain variables that have linear relationships among the various constituent ele-
ments. If this situation does not hold, then simulation models can be used. Simulation
relaxes the requirement for linear relationships, but at the expense of greater depen-
dency on the assumptions around the algorithms used to calculate the forecasts. The
province of British Columbia used linear programming to determine the total number
of students to admit to healthcare programs, the total number of nurses to train for
management roles, and the total number to recruit from outside the region. The model
incorporated variables such as learning and parental leaves, promotion rules, and rates
and age.39 Complex mathematical models such as linear programming and simulation
have distinct advantages; they can integrate a large number of variables from across
the organization, they are excellent tools for testing what-if scenarios and the impact
of assumptions on forecasts, and they can simultaneously forecast both demand and
supply. However, as we will discuss in more detail in Chapter 8, the complexity of
these models can make them difficult to understand and troubleshoot, even for the
designers of the models.

MOVEMENT ANALYSIS
Movement analysis is a technique used to analyze the chain or ripple effect that promo-
tions or job losses have on the movements of other employees in an organization.40
The total number of people movements is always greater than or equal to the number
of vacant positions to be filled. If relying solely on external hires, the number of vacant
positions to be filled is exactly equal to the number of new hires obtained by the orga-
nization, as there are no internal promotions of current employees to replace the losses.
Conversely, if we rely heavily on current employees (i.e., internal supply) to fill position
openings, the total number of movements will be greatly in excess of the number of
open positions, because any one opening (e.g., due to a promotion or termination) will
result in a chain of subordinates sequentially moving to fill the gaps (see HR Planning
Notebook 6.2 for recommendations around how to manage internal labour markets).41
Movement analysis enables the HR planner to select the desired mix or percentage of
internal and external supply for those positions requiring replacements, ranging from
a promote-from-within policy to the other extreme of replacing losses entirely through
external hiring.

Movement analysis can be performed for the organization as a whole, although
analysts normally find it more useful to conduct separate analyses for each department,
division, or functional area.42 The normal planning time horizon is one year, and starts
with identifying the number of employees in each authority or compensation-band
level at the start of the forecasting period. Next, we consider changes in the level of
staffing for the department—that is, whether we are going to increase the number of jobs
in some or all authority levels or downsize to reduce the total number of employees
in the department. Having increased or decreased the employee requirement from
that which was forecast at the start of the period, we now turn to calculating the

Movement analysis
A technique used to
analyze the chain or
ripple effect that promo-
tions or job losses have
on the movements of
employees

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NEL 151CHAPTER 6 Ascertaining HR Supply

losses requiring replacement for each authority level of the
department. We are interested only in losses (e.g., because
of promotions, transfers out of the department, voluntary
turnover, termination) that need to be replaced; therefore,
it is important that we not “double-count” positions that
have already been incorporated into the staffing changes
column! We add changes in staffing level to employee
losses requiring replacement to give us the total number
of positions requiring replacement. At this stage, having
determined the total number of positions to be filled, the
actual number of employee movements, as briefly described
previously can vary widely, depending on our organization
or department’s desired policy concerning the supply mix of
internal and external replacements. HR Planning Notebook
6.3 provides information on the kinds of data that may be
used to help determine whether to develop human capital
internally or to hire from external sources.

Tables 6.2 and 6.3 demonstrate the assumptions and
outcome of a movement analysis exercise. Table 6.2 shows
the expected movement of employees at each job level in a
work unit. At the beginning of the planning period, there
are six jobs in job level five; by the end of the period this
job level is increasing by another six positions, but three
existing employees are expected to leave. Therefore, the
total number of positions to be filled at this level is nine.
Taking these total changes at each level to Table 6.3, we see
that the changes made at each level are cumulative, so that
167 changes are required to accommodate the call for 68
positions to be filled.

HR PLANNING NOTEBOOK 6.2

MANAGING THE FIRM’S INTERNAL LABOUR MARKET: LESSONS FROM THE FIELD

Professors at Simon Fraser University’s Faculty of Business
Administration have uncovered four lessons in properly
using internal labour markets to supply the organization’s
staffing requirements based on their study of a large man-
ufacturing firm:

1. Managers should recognize that there are often mul-
tiple internal labour markets typically operating in
one firm.

2. Managers should conceptualize their staffing task as
managing a system of human resource flows.

3. Managers need to develop an appreciation for the
temporal and situational contexts within which
staffing decisions are made.

4. Staffing decisions themselves can be appropriately
viewed as garbage-can models (a classic model of
decision making) in which multiple issues and mul-
tiple criteria are typically invoked in matching indi-
viduals and jobs.

Source: Adapted from L. Pinfield and V. Bushe, “Managing the Firm’s Internal Labour Market: Lessons from the Field,” Burnaby, BC: Faculty of
Business Administration, Simon Fraser University. Paper presented at the Western Academy of Management Annual Meeting, Spokane (April 1992).

Most organizations have a policy of promoting from within except
for entry-level positions.

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NEL152 Strategic Human Resources Planning

HR PLANNING NOTEBOOK 6.3

USING DATA TO DECIDE WHETHER TO DEVELOP INTERNALLY OR HIRE EXTERNALLY

The decision to make or buy the inputs necessary to pro-
duce a product or service are based on factors such as
the strategic importance of the input, and the strength
that the supplier of the product has in capturing value.
For example, television manufacturers tend to differen-
tiate themselves on the basis of the quality of the picture
their televisions produce. However, manufacturing the LCD
panels in televisions is complicated and expensive, and the
technology on which they are built is constantly changing,
so there are only a few companies that manufacture LCD
panels for televisions. In this case, the supplier of the
LCD panels has a lot of power in the industry, because its
buyers (the television producers) are highly dependent on
LCD panels for their products, and those buyers have little
choice as to where to source their LCD panels. For the
television manufacturer, the only choices available are to
continue to buy LCD panels from their current source, or
if their source becomes so expensive that they no longer
derive a competitive advantage from selling televisions,
they could (1) move out of the TV sales industry, (2) design
and manufacture their own LCD panels, or (3) buy their
supplier. These choices have clear boundaries, and a firm
can decide at what specific point it makes sense to buy
or make the inputs to their supply.

How does this question extend to the supply of labour?
To buy human capital implies hiring from the labour market,
and to make human capital implies training and developing
employees. The decision is not as clear-cut when looking at

human capital partly because it is very difficult to determine
the difference in costs between these two options. But as
discussed in HR Planning Today 6.5, it is possible to assess
the cost of too much supply versus not enough. The Govern-
ment of Canada produces several forecasts of labour supply
that can help planners to decide what jobs should receive
more development and training attention in anticipation of
external hiring challenges. Some of the relevant forecasts
produced by the Federal Government include

• Job vacancy rate. Statistics Canada produces
monthly estimates of the number of jobs that are
unfilled as a proportion of all jobs, by geographical
region and by industry. This can help planners to
understand areas of the job market that are expe-
riencing or are expected to experience a shortage
or surplus of available labour.

• Job openings by skill level. The Canadian Occu-
pational Projection System (COPS) produces
forecasts of job openings attributable to eco-
nomic growth and employment growth, by skill
level and industry. Planners can use these data
to make longer-term estimates of labour shortage
or surplus.

Taken together, planners use these data to help fore-
cast the expected availability of external labour, which can
then be incorporated into decisions around the importance
of developing internal labour pools for talent.

Sources: Statistics Canada, “Job Vacancy Statistics,” http://www23.statcan.gc.ca/imdb/p2SV.pl?Function=getSurvey&SDDS=5202, Government of
Canada; and Canadian Occupation Projection System: Job Openings (2015–2024). http://occupations.esdc.gc.ca/sppc-cops/[email protected]
eng.jsp?fid=50&lid=64.

By estimating the number of internal promotions and external hires, movement
analysis can help planners to ensure that the firm is able to devote enough resources in
the training and development of its current employees (i.e., the 99 employees who would
have taken up positions at higher levels) and in the recruitment of the 68 new hires.

VACANCY MODEL
The vacancy, renewal, or sequencing model analyzes human capital flows throughout
the organization by examining inputs and outputs at each hierarchical or compensation
level.43 Vacancy models have been found to have more predictive capacity than Markov
models over short- and long-term periods (of 3, 5, and 10 years),44 although the common

Vacancy, renewal, or
sequencing model
Analyzes flows of
employees throughout
the organization by
examining inputs and
outputs at each hierar-
chical or compensation
level

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NEL 153CHAPTER 6 Ascertaining HR Supply

time frame for this model is one year into the future. It is important to calculate supply
requirements one level at a time in a “top-down” fashion, beginning at the highest relevant
level, because the normal direction of employee movement in an organization is from
the bottom to the top. The rationale behind the vacancy model is simple: the supply
needs at each salary level are determined by staffing changes—the number of employees
promoted out of the level plus any losses (e.g., retirements, departures, terminations).

TABLE 6.2

NUMBER OF POSITIONS TO BE FILLED

JOB LEVEL
NUMBER OF POSITIONS

AT START OF PERIOD
STAFFING
CHANGES TERMINATIONS

POSITIONS TO
BE FILLED

4 1 1 0 1

5 6 6 3 9

6 20 1 5 6

7 32 2 10 12

8 40 2 14 16

9 50 3 21 24

149 15 53 68

Sources: Adapted from E.H. Burack and N.J. Mathys, Human Resource Planning: A Pragmatic Approach to Manpower Staffing and
Development, 3rd ed. (Northbrook, IL.: Brace Park, 1996); D. Bartholomew, Stochastic Models for the Social Sciences (New York:
Wiley,!1982); E.!Burack and J. Walker, Manpower Planning and Programming (Boston: Allyn & Bacon, 1972); R. Grinold and K. Marshall,
Manpower Planning Models (New York: Elsevier North-Holland, 1977); R. Niehaus, “Models for Human Resource Decisions,” Human
Resources Planning, Vol. 11, No. 2 (1988): 95–107; J. Walker, Human Resources Planning (New York: McGraw-Hill, 1980); and H. White,
Chains of Opportunity: System Models of Mobility in Organizations (Cambridge, MA: Harvard University Press, 1970).

TABLE 6.3

EMPLOYEE MOVEMENT

POSITIONS TO BE
FILLED

TOTAL RIPPLE OR CHAIN
MOVEMENT

TOTAL
EMPLOYEE
MOVEMENT

1 — — — — 1

9 + 1 — — — — 10

6 + 1 + 9 — — — 16

12 + 1 + 9 + 6 — — 28

16 + 1 + 9 + 6 + 12 — 44

24 + 1 + 9 + 6 + 12 + 16 — 68

68 5 36 18 24 16 5 167

Sources: Adapted from E.H. Burack and N.J. Mathys, Human Resource Planning: A Pragmatic Approach to Manpower Staffing and
Development, 3rd ed. (Northbrook, IL.: Brace Park, 1996); D. Bartholomew, Stochastic Models for the Social Sciences (New York: Wiley,
1982); E. Burack and J. Walker, Manpower Planning and Programming (Boston: Allyn & Bacon, 1972); R. Grinold and K. Marshall,
Manpower Planning Models (New York: Elsevier North-Holland, 1977); R. Niehaus, “Models for Human Resource Decisions,” Human
Resources Planning, Vol. 11, No. 2 (1988): 95–107; J. Walker, Human Resources Planning (New York: McGraw-Hill, 1980); and H. White,
Chains of Opportunity: System Models of Mobility in Organizations (Cambridge, MA: Harvard University Press, 1970).

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NEL154 Strategic Human Resources Planning

Organizational policy is used to determine the extent to which these openings
will be filled by internal and external supply. Losses are normally based on historical
trends with respect to the proportion of employees at each level who normally exit
from that level annually, while growth estimates are based on the normal business fore-
casting process. Overall, vacancies in the organization lead to a sequence of internal
promotions from lower levels as the open positions are filled by replacements. The
vacancy model identifies the specific number of external and internal replacements
required at each level and for the organization as a whole. Table 6.4 demonstrates the
output of a vacancy model exercise. The assumptions that are required to produce this
model include an estimate of the proportion of external hires that will be made at each
job level; for example, this model assumes that job levels one and two will be filled
100 percent internally. The bottom row of the table shows the total expected forecast
of external hires, and the columns break down the replacements and expected external
hires by job level.

The vacancy model also demonstrates that despite the requirement to hire 114 new
hires, this is being offset by 114 terminations, representing net growth of zero.

// SUBSTITUTION AND OTHER GAP STRATEGIES
After forecasting the demand for and the supply of human capital, the difference
between these two figures represents a surplus if the supply exceeds demand, or a gap
if the demand exceeds supply. In the event of a gap, firms must hire externally in the
short term, but have a few more options over the long term. Some strategies include
outsourcing the extra requirement, focusing on retention strategies to reduce volun-
tary terminations, increasing training and development efforts to further develop the
internal labour pool, and substituting human efforts with automation (see HR Planning
Notebook 6.4 for ideas on enhancing retention policies). The introduction to Chapter 5
discusses the uncertainty that automation will have on employment over the next

TABLE 6.4

OUTPUT OF A VACANCY MODEL EXERCISE

LEVEL
NO. OF EMPLOYEES
AT START OF YEAR

ANNUAL
LOSSES

PROMOTIONS
TO LEVEL

LEVEL
OUTFLOWS

EXTERNAL
HIRING

1 1 1 1 1 0

2 6 1 2 2 0

3 18 3 4 5 1

4 45 9 9 13 4

5 88 22 14 31 17

6 156 78 0 92 92

314 114 30 144 114

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NEL 155CHAPTER 6 Ascertaining HR Supply

Automation is expected to become a popular substitution strategy over the next decade, particularly for
low-skilled or repetitive jobs.

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HR PLANNING NOTEBOOK 6.4

DEVELOPING EFFECTIVE EMPLOYEE RETENTION POLICIES

Although most organizations tend to devote consider-
able time and resources to the process of attracting new
workers, a great many fall short by not putting enough
emphasis on retaining the high-quality workers they cur-
rently employ. In order to rectify this situation, studies
note the importance of making retention policies a top
corporate priority. Several studies have clearly shown
that managers at all levels should be held responsible
for the retention of their employees, and managerial per-
formance evaluation should incorporate specific measur-
able goals in this matter. Greater importance should be
given to identifying high-performing and high-potential
employees, and their associated values, interests, needs,
and so on, before they leave to work for competitors.
Organizations should conduct a demographic analysis

and compensation reviews by using their HRMS. These
analyses will enable HR planners to identify potential
gaps in skills and develop policies to ensure sufficient
well-trained employees are on hand over the medium
and long term. Other retention policy recommendations
include (1) forming a “retention task force” to include
HR professionals, line unit managers, and senior execu-
tives; (2) reinforcing employee loyalty and performance by
“promoting from within” wherever possible; (3) measuring
turnover on an ongoing basis at corporate, division, and
local levels, utilizing multiple measures; (4) holding line
managers responsible for retention; and (5) reviewing and
addressing compensation and working condition issues
before they become issues for dissatisfaction that prompt
employees to leave the organization.

Sources: Adapted from M. Young, “The Case of the Missing CEO,” Canadian HR Reporter, February 14, 2000: pp. 117–120; and M. Abrams,
“Employee Retention and Turnover: Holding Managers Accountable,” Trustee, Vol. 55, No. 3 (March 2002), T1–T4.

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NEL156 Strategic Human Resources Planning

10 years. Looking at the automobile industry as an example of how automation might be
used as a substitute for human labour, the industry has transformed only its most basic
and repetitive functions such as paint and body shops.45 It appears that fast response
may be an impediment to automation, since it takes time to develop and adjust the
tools to perform the work, and it takes time to recoup the investments made in the
technology and machinery. People can be retrained much more quickly and efficiently.

MANAGING THE BULLWHIP EFFECT
Managing the supply of human capital is most effective when the stock and flow of that
human capital are considered together and in detail. Human capital segmentation, Markov
analysis, movement analysis, and vacancy models all consider the current stock of employees
and how the flow of those stocks will influence the supply. This level of detail can help to
reduce the bullwhip effect that is known to affect demand and supply relationships. The
bullwhip effect occurs when errors in estimates of supply become amplified as those errors
are compounded along the supply chain. For example, if the manager at a clothing retailer
is uncertain as to the exact supply of part-time sales people in the store, he or she might
decide to estimate the supply a little on the low side just to ensure there is not a shortfall of
employees available to work part-time. When considering the demand for part-time sales
people, planners will reduce risk by estimating demand a little on the high side, to make sure
that there is not a shortage of part-time sales people. Now this error has been compounded, so
when a gap analysis is examined between the estimated demand for and supply of part-time
sales people, the gap will be much larger than anticipated by either the demand or supply
estimate. This exaggerated gap gets passed to recruitment, who in order to reduce risk will
recruit for slightly more than the estimated amount to make sure there is not a shortage of
part-time sales people. Now this error has been compounded yet again. After recruitment
has taken place, planners are shocked to learn that they greatly overestimated their need for
part-time sales people. The bullwhip effect can be present in any kind of supply chain, and
in the context of human capital management can waste recruitment resources, employee
time, and the firm’s money. HR Planning Notebook 6.5 provides recommendations around
understanding and reducing the negative consequences of forecasting errors.

Bullwhip effect
When errors in esti-
mating the supply of
human capital are
amplified along the
supply chain, resulting
in large overestimates
of hiring needs

HR PLANNING TODAY 6.5

HOW ACCURATE IS YOUR FORECAST?

Forecasts are almost never absolutely correct. Given the
unpredictable and ever-changing nature of the economy,
business plans, and management preferences, it is not
surprising that forecasts stand little chance of being exact.
But being precise is not the main objective of forecasting.
What is important is understanding what is worse: being
wrong by underestimating supply or being wrong by over-
estimating supply. For a high-tech company that estimates
that it should hire 10 new engineers, will business suffer

more from hiring 10 when they only needed 6, or from
hiring 10 when they really needed 14? In order to reduce
the costs of errors in forecasts, planners can do two things:
(1) estimate the amount of error in forecasting, and (2)
consider the costs of underestimates versus the cost of
overestimates.

Given what we know about the bullwhip effect, when
demand estimates are based on production, sales, or some
other organizational index, the error in that measure will

(continued )

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157CHAPTER 6 Ascertaining HR Supply NEL

// SUMMARY
This chapter presented a range of methods used in organizations to determine future HR
supply requirements. Skills and management inventories contain information that allows
a detailed analysis of the current workforce to determine whether we can meet the demand
for replacement from current employees in the organization. Markov models use historical
patterns of individual movement between jobs in the organization based on the transitional
probabilities for promotion, transfer, and remaining in the particular job for an annual or
specified future period. Markov analyses allow planners to model the number of open posi-
tions throughout the organization and can track career progression and the time required
for individuals to reach specified target jobs. Linear programming and simulation use math-
ematical equations and algorithms to model supply given specified constraints such as
minimizing labour cost or achieving a desired mix of diverse employee group memberships.
Movement analysis enables the identification of not only the location and number of open
positions that must be filled by the organization but also the total number of individuals
who will be moved to fill these openings. The vacancy model provides specific information
on total flows into and out of each job or compensation level, as well as for the organization
as a whole. While any forecasting method will lead to error, it is important for planners to
understand the potential sources of error in forecasting supply, and to monitor past forecasts
and forecasting methods in order to continuously improve forecasting practices.

KEY TERMS
bullwhip effect p. 156
employee segmentation p. 137
external supply p. 136
internal supply p. 136
linear programming p. 149

tend to be compounded by subsequent estimates. In order
to measure how much error has crept into our estimates,
planners can compare past forecasts with actual require-
ments. Taking the average of the error rates over several
years (or other relevant period) of estimates will provide
some indication of the extent of the error and also its direc-
tion (that is, whether the estimates tend to undershoot or
overshoot actual requirements).

After assessing the amount of error in estimates,
planners can examine the costs of being wrong in either
direction. Managers should consider the impact to the
actions that are relevant to implementing the firm’s
strategy when estimates are too low; can the skills that

are required to perform the work be acquired through
other means (temporary workers, contracting the work to
external sources, auctioning the work on a talent portal,
new hiring, etc.)? Planners must also consider what will
happen if estimates are too high; can we use the sur-
plus employees in some other way that is useful to the
employee and to the organization? Are the differences
in errors in one direction significantly more costly to the
organization than errors in the other direction? Answers
to these questions can help planners and managers to
understand how much error tends to be in their forecasts,
the severity of mistakes in one direction or the other, and
the costs associated with being wrong.

Source: Adapted from Cappelli, P. (2009). A supply chain approach to workforce planning. Organizational Dynamics, 38, pp. 8–15.

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158 NELStrategic Human Resources Planning

management inventory p. 145
Markov model p. 146
mass customization of HR p. 143
movement analysis p. 150
skills gap p. 139
skills inventory p. 144
transitional probability p. 147
vacancy, renewal, or sequencing model p. 152

DISCUSSION QUESTIONS
1. This chapter discusses some of the reasons for giving preferential consideration to

your own workforce to fill job openings. Are there any disadvantages? What can
management do to mitigate these potentially negative effects?

2. Employee segmentation involves grouping employees by similar characteristics or
preferences for the employment contract. Discuss how a company like Canadian
Tire might segment its store employees.

3. This chapter identified three sources of labour (Aboriginal people, older people,
and automation) that are growing and may be available to meet labour demands.
Imagine that you are the owner of a warehouse distribution centre in Edmonton,
Alberta. On your own or in groups, prepare a list of the advantages and limitations
for using one of these labour sources.

4. A Markov model provides important information to the HR supply analyst with
respect to movement or flows of employees through various jobs in the organi-
zation. Discuss how this supply-forecasting technique might also provide useful
information to line managers and workers (i.e., non-HR staff).

EXERCISE
1. The corporate HR department of a major Canadian financial institution is grouped

by function; for example, there is a compensation group, a recruitment and selec-
tion group, a benefits group, and so on. Each group within the HR function has the
same hierarchy consisting of administrative assistants, HR analysts, HR specialists,
and HR managers. In total at the beginning of the period there are 6 administrative
assistants, 16 analysts, 10 specialists, and 10 managers across the HR function. The
transitional probabilities for each job are:

• Administrative assistants: 70% stay in their job, and 30% move to analyst roles.
• Analysts: 75% stay in their role, 12.5% move to specialist roles, and 12.5% exit

the firm.
• Specialists: 60% stay in their role, 20% move to manager roles, and 20% exit

the firm.
• Managers: 80% stay in their role. 10% move to executive jobs, and 10% leave

the firm.
• Construct a Markov matrix for the jobs of the administrative assistants, ana-

lysts, specialists, and managers, showing movement from Time 1 to Time 2.
Does this matrix suggest any HR issues that could use attention?

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159CHAPTER 6 Ascertaining HR Supply NEL

CASE STUDY HR PLANNING AT M&K

1. Workforce complement at M&K as of the end of this year is as follows:

CEO Level 1 1

Executive Vice-President Level 2 5

Senior Vice-President Level 3 10

Vice-President Level 4 20

Director Level 5 100

Senior Manager Level 6 200

Manager Level 7 400

Associate Level 8 500

Assistant Level 9 1200

2. The staffing levels for CEO and EVPs are to remain unchanged next year.
The number of SVPs and VPs required are dependent on annual revenues.
Staffing levels for SVPs and VPs are considered to be optimal in this year.
Revenue generated for the year 2011 was $2 billion with 10 SVPs and
20 VPs. The revenue level for next year is expected to reach $3 billion.

3. The company is planning to open three additional offices across the
country next year. Each office requires 5 directors, 15 senior managers,
30 managers, 50 associates, and 80 assistants.

4. The company will also be outsourcing its payroll and benefits admin-
istration to DES next year. The company is getting rid of its donut
business because of the shift in consumer tastes to healthier foods. Cur-
rently, 15 directors, 20 senior managers, 30 managers, 50 associates, and
150 assistants are involved in these activities.

5. Introduction of a new computer system will increase the productivity
of the assistants by 50 percent but will require hiring a team of tech-
nical staff, which will include 5 senior managers, 10 managers, and 50
associates.

6. Forecasted losses for next year are as follows:

Quits (%) Dismissals (%) Retirements (%)
Level 1 0 0 0

Level 2 20 0 20

Level 3 10 0 10

Level 4 10 0 0

Level 5 40 5 0

Level 6 15 10 0

Level 7 50 5 0

Level 8 30 10 0

Level 9 40 5 0

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160 NELStrategic Human Resources Planning

7. M&K has two HR supply policies, as follows:
a. Exclusively “promote from within”
b. A combination of internal promotion and external hires, as follows:

Inside (%) Outside (%)
Level 1 100 0

Level 2 80 20

Level 3 70 30

Level 4 60 40

Level 5 50 50

Level 6 40 60

Level 7 30 70

Level 8 20 80

Level 9 0 100

8. According to information stored on M&K’s comprehensive HRIS
system, annual employee movements between levels 5 and 9 in last year
are as follows:

Level 4 Level 5 Level 6 Level 7 Level 8 Level 9 Exit Total
Level 5 10 80 5 5 100

Level 6 10 160 30 200

Level 7 20 360 20 400

Level 8 70 455 175 700

Level 9 300 500 200 1000

9. M&K has also been tracking its revenues against the number of managers
on staff. Below is the information obtained from M&K’s ERP:

Year No. of Managers Revenues ($B)
This year (year X) 400 2

Year X – 1 320 1.8

Year X – 2 250 1.5

Year X – 3 200 1.3

Year X – 4 150 1.0

QUESTIONS

1. Estimate the total HR demand for M&K for next year, by job level.
2. Estimate changes in HR supply for M&K for next year, by job level.

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161CHAPTER 6 Ascertaining HR Supply NEL

3. Calculate the number of employee movements if M&K uses:
a. Exclusively a “promote from within” policy, or
b. A mix of internal and external supply as detailed in item 7b
As HR Director, what do you see as some of the talent strategies
and plans that have to be in place to facilitate each of the above
options?

4. Calculate the transitional probabilities of movements for levels 5 to 9
on the basis of information provided in item 8. Using the calculated
transitional probabilities, what employee movements (at levels 5 to 9)
might take place next year?

5. Using information provided in item 9, estimate the number of managers
that M&K would need using regression analysis if revenue levels:
a. Increase to $2.5 billion
b. Increase to $3.5 billion
How many managers would M&K have to let go if revenues drop to
$1.5 billion?

// REFERENCES
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Talent Segments?” Transformative HR: How Great Companies Use Evidence-based
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2. Ibid.
3. Ibid.
4. Ibid.
5. Grant, T. 2014. “Hiring for the Future.” The Globe and Mail (November 17):

B1, B3.
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23. Gans, N., and Y. Zhou. 2002. “Managing Learning and Turnover in Employee
Staffing.” Operations Research, Vol. 50, No. 6: 991–1007; Bechet, T.P., and
W.R. Maki. 1987. “Modeling and Forecasting: Focusing on People as a
Strategic Resource.” Human Resource Planning, Vol. 10, No. 4: 209–217.

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k _w� `c� qsnnpcqqcb� dpmk � rfc� [email protected] � _l b-mp� cAf_nrcp&q’,� Lcjqml � Cbsa_rgml � pcqcpt cq� rfc� pgefr� rm� pck mt c� _bbgrgml _j� aml rcl r� _r� _l w� rgk c� gd� qs`qcoscl r� pgefrq� pcqrpgargml q� pcosgpc� gr,

163CHAPTER 6 Ascertaining HR Supply NEL

24. Blakely, R. 1970. “Markov Models and Manpower Planning.” Industrial
Management Review (Winter): 39–46.

25. Stone, T., and J. Fiorito. 1986. “A Perceived Uncertainty Model of Human
Resource Forecasting Technique Use.” Academy of Management Review,
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26. Zeffane, R., and G. Mayo. 1995. “Human Resource Planning for Rightsizing:
A Suggested Operational Model.” American Business Review, Vol. 13, No. 2
(June): 6–17.

27. Ibid: 6–17.
28. Gans, N., and Y. Zhou. 2002. “Managing Learning and Turnover in

Employee Staffing.” Operations Research, Vol. 50, No. 6: 991–1007;
Nielsen, G.L., and A.R. Young. 1973. “Manpower Planning: A Markov
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29. White, H. 1970. Chains of Opportunity: System Models of Mobility in
Organizations. Cambridge, MA: Harvard University Press.

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Resource Forecasting Technique Use.” Academy of Management Review,
Vol. 11, No. 3: 635–642.

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Personnel Journal, Vol. 65, No. 5 (May): 50–58.

32. Sandefur, G. 1981. “Organizational Boundaries and Upward Job Shifts.”
Social Science Research, Vol. 10, No. 1 (March): 67–82; Bartholomew, D. 1996.
Mobility Measurement Revisited in the Statistical Approach to Social Measurement.
San Diego: Academic Press.

33. Tuma, N. 1976. “Rewards, Resources, and the Rate of Mobility: A Nonsta-
tionary Multivariate Stochastic Model.” American Sociological Review, Vol. 41,
No. 2 (April): 338–360.

34. Rowland, K., and M. Sovereign. 1969. “Markov Chain Analysis of Internal
Manpower Supply.” Industrial Relations (October): 88–99; Glen, J.J. 1977.
“Length of Service Distributions in Markov Manpower Models.” Operational
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35. Lagarde, M., and Cairns, J. 2012. “Modelling Human Resources Policies with
Markov Models: An Illustration with the South African Nursing Labour
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36. Al-Harbi, K. 2000. “Optimization of Staff Numbers in the Process Indus-
tries: An Application of DEA.” International Journal of Manpower, Vol. 21,
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Turnover in Employee Staffing.” Operations Research, Vol. 50, No. 6:
991–1007; Weigel, H., and S. Wilcox. 1993. “The Army’s Personnel Decision
Support System.” Decision Support Systems, Vol. 9, No. 3 (April): 281–306.

37. Patz, A.L. 1970. “Linear Programming Applied to Manpower Management.”
Industrial Management Review, Vol. 11, No. 2 (Winter): 131–138.

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Employee Staffing.” Operations Research, Vol. 50, No. 6: 991–1007;
Walker, J.W. 1980. Human Resource Planning. New York: McGraw-Hill.

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k _w� `c� qsnnpcqqcb� dpmk � rfc� [email protected] � _l b-mp� cAf_nrcp&q’,� Lcjqml � Cbsa_rgml � pcqcpt cq� rfc� pgefr� rm� pck mt c� _bbgrgml _j� aml rcl r� _r� _l w� rgk c� gd� qs`qcoscl r� pgefrq� pcqrpgargml q� pcosgpc� gr,

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39. Lavieri, M.S., and Puterman, M.L. 2009. “Optimizing Nursing Human
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Stochastic Models for the Social Sciences (3rd ed.). New York: John Wiley;
Bartholomew, D. 1996. Mobility Measurement Revisited in the Statistical
Approach to Social Measurement. San Diego: Academic Press.

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and Markovian Labor Supply Models: Comparative Tests in an Organiza-
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k _w� `c� qsnnpcqqcb� dpmk � rfc� [email protected] � _l b-mp� cAf_nrcp&q’,� Lcjqml � Cbsa_rgml � pcqcpt cq� rfc� pgefr� rm� pck mt c� _bbgrgml _j� aml rcl r� _r� _l w� rgk c� gd� qs`qcoscl r� pgefrq� pcqrpgargml q� pcosgpc� gr,

NEL

CHAPTER

7

CHAPTER LEARNING OUTCOMES
AFTER READING THIS CHAPTER, YOU SHOULD BE ABLE TO:

• Understand why succession management is important.
• Trace the evolution of succession management from its roots in replacement

planning, comparing the two models with respect to focus, time, and talent
pools.

• List the steps in the succession management process.
• Compare and contrast the job-based and competency-based approaches to

aligning future needs with strategic objectives.
• Discuss the four approaches to the identification of managerial talent.
• Describe several ways to identify high-potential employees.
• Evaluate the advantages and disadvantages of the five management develop-

ment methods: promotions, job rotations, special assignments, formal training,
and mentoring and coaching.

• Recognize the difficulties in measuring the success of a management succes-
sion plan.

• Outline the employee’s role in the succession management process.
• Describe the role of HR in succession management.

SUCCESSION MANAGEMENT

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NEL166 Strategic Human Resources Planning

// IMPORTANCE OF SUCCESSION MANAGEMENT
Executives of any organization must develop the next generation of leaders, just as
sports teams need to develop the next generation of players. Succession management
refers to the systematic process of determining critical roles within the organization,
identifying and evaluating possible successors, and developing them for these roles.1
(Succession management might be viewed as part of the talent management process
of an organization that focuses on the flow of employees, starting from selection to
career management to exit, through the organization.) The importance of succession
management is discussed in HR Planning Notebook 7.1.

Succession management used to focus mainly on the CEO. However, there must
be a pipeline of talent for the most critical roles:

1. The CEO
2. The senior management team (executives)
3. Critical roles based on long-term value to the organization (such as scientists

or customer relationship specialists)2

Edwards Lifesciences is a manufacturer of medical prod-
ucts with more than $1 billion in sales and 5700 employees.
Its CEO dedicates 20 percent of his time to talent manage-
ment issues. This highly profitable company attributes its
succession management success to its identification of
75 critical positions (which it refuses to reveal for competi-
tive reasons). Each of these 75 positions has at least two
employees identified as replacement candidates. The com-
pany spends millions of dollars annually to develop quali-
fied candidates for these positions, including e-learning

initiatives and weeklong leadership programs for upper
management and promising talent. Almost 70 percent of
jobs are filled by internal candidates. Every board meeting
and every management meeting includes an item on suc-
cession management. For its program to track and retain
candidates for critical positions, Edwards Lifesciences was
awarded the Optimas Award for Competitive Advantage.

Source: Ruiz, G. “Edwards Lifesciences: Optimas Award winner
for Competitive Advantage,” www.workforce.com, retrieved

October 13, 2008.

SUCCESSION MANAGEMENT AT EDWARDS LIFESCIENCES

HR PLANNING NOTEBOOK 7.1

THE IMPORTANCE OF SUCCESSION MANAGEMENT

Organizations must view succession management as a
critical activity aligned with the organization’s business
strategy. Due to factors such as the impending retire-
ment of millions of baby boomers, the large increase in
the turnover of CEOs, and the need to transfer corporate
knowledge, there is increasing pressure on organiza-
tions to develop succession plans. Companies without a
succession plan experience a drop of about one-third in

business after the transition to new management. The
effective implementation of succession management has
been linked to these outcomes: the retention of key talent;
increase in shareholder value; and reduced senior execu-
tive turnover after succession. Moreover, organizations that
have developed a reputation for developing key talent have
a significant value proposition to attract new employees
and retain key ones.

Source: Stadler, K. 2011. “Talent reviews: the key to effective succession management,” Business Strategy Series, 12, 5, pp. 264–271, www.pwec
.com/ca/en/private-company/lets-talk/succeding-through-succession.

Succession
management
The systematic process
of determining critical
roles with the organiza-
tion, identifying and
evaluating possible suc-
cessors, and developing
them for these roles

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NEL 167CHAPTER 7 Succession Management

Succession management consists of a process of identifying employees who have the
potential to assume key positions in the organization and preparing them for these positions.
The identification of talent is always paired with ongoing programs to develop that talent.
Succession management ensures continuity in leadership and, like any rookie program,
develops the next generation of players. The goals of succession management programs are
to identify and prepare future leaders and to ensure business continuity.3 The first priority of
any succession management program is to have a plan to replace its leaders. Organizations
with positive reputations for leadership brands tend to outperform their peers.4

As Peter Drucker says, the ultimate test of good management is succession manage-
ment, ensuring that there is a replacement for the CEO.5 Organizations must prepare
for expected and unexpected turnover, for key players die, retire, or quit. Unfortunately,
only about half of organizations answered “yes” when asked the question “If your presi-
dent or CEO resigned today, do you know who would take charge of the company?”6
At McDonald’s, the excellent succession management program enabled the company
to designate a replacement within six hours of the CEO’s sudden death, compared to a
more typical delay of six months. The research shows that delays in naming a successor
result in decreasing operating performance, and that these negative effects can last up to
two years.7 Fiery young entrepreneurs who build hugely successful businesses often see
them fail in the hands of their untrained children. Many Canadian dynasties (e.g., Eaton’s,
Simpsons) have failed because their heirs were incapable of managing the business.

Succession management is needed even when retirements and company sellouts are
predictable. The baby boomers who currently hold most of the leadership positions are
retiring. Twenty percent of top management positions and 25 percent of middle management
positions will become vacant in the near future, and retirements of baby boomers (the first
of whom turned 65 in 2011) will accelerate this trend.8 And 75 percent of executives are wor-
ried about their ability to develop leaders.9 Yet this worrying does not result in action plans,
as only 25 percent of companies report having a formal succession plan in place.10 About
one-half of the HR managers don’t consider grooming potential leaders a high priority.11

At a minimum, firms need to plan for replacements, and personnel planning was the
first step in the march toward sophisticated models of succession management. Some
reasons for succession management are listed in HR Planning Notebook 7.2. The next
section traces this evolution.

HR PLANNING NOTEBOOK 7.2

WHY ORGANIZATIONS HAVE SUCCESSION MANAGEMENT PROGRAMS

1. Improve internal candidate pools.
2. Assure business continuity.
3. Reduce skill gaps.
4. Retain employees.
5. Help individuals realize their career plans within the

organization.

6. Develop leaders more quickly.
7. Encourage the advancement of diverse groups.
8. Improve employees’ ability to respond to changing

environmental demands.

Sources: K. Lamoureux, “Developing Leaders,” Leadership Excellence, Vol. 25, No. 7 (July 2008): 11, 12; and A. Paradise, “Many Barriers Inhibit
Success of Succession Planning,” TD Magazine, Vol. 64, No. 6 (2010): 60.

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NEL168 Strategic Human Resources Planning

EVOLUTION OF SUCCESSION MANAGEMENT
Replacement planning can be defined as the process of identifying short-term and long-
term emergency backups to fill critical positions. If the CEO dies, who will be prepared
to take over that position? Is there a replacement for the vice-president of marketing if
he or she suddenly quits to take another job? The events of September 11, 2001, tragi-
cally presented a worst-case scenario. Bond trading firm Cantor Fitzgerald lost 700 of
its 1000 World Trade Center staff, including most of its executives.

Formal and methodical replacement planning has existed for over 30 years. This
section examines how replacement planning has evolved into succession management by:

• Broadening the focus
• Expanding the time horizon
• Creating a talent pool of replacements
• Improving the evaluation system

BROADER FOCUS
The focus of replacement planning was the job, and having a replacement ready to fill
that job if the incumbent died or quit. This concept referred mainly to the succession
and replacement charts for the high-level or key positions in the organization. Each
key position is represented by a box on the chart, with the name and possible retire-
ment or departure date of the incumbent in the box (see Figure 7.1). Below the box are

Replacement planning
The process of iden-
tifying short-term and
long-term emergency
backups to fill critical
positions

FIGURE 7.1

EXAMPLE OF REPLACEMENT CHART

VP Production
C. Chan (A2)
C. Berr y (B2)
A. Houle (B3)

VP Systems
A. Singh (B2)
H. Psaus (B3)
J. Roller (C4)

VP Client Services
H. Robertson (A1)

C. Yulater (C1)
H. Inmitey (C3)

Succession Codes
Readiness Performance
A. PN – Promotable Now
B. ND – Needs Development
C. R – Retain in current position

1.
2.
3.
4.

Excellent
Above average
Acceptable
Needs improvement

President, Megacorp
C. Rawler

H. Robertson (A1)
C. Chan (A2)

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NEL 169CHAPTER 7 Succession Management

the names of two or three potential successors, with codes indicating readiness next to
their names. These would be, for example, codes such as “PN” for “promotable now”
or “ND” for “needs development” or R (Retain in current position).

As you can imagine, the promotion of one employee causes a ripple or chain effect,
as subsequent employees are promoted to fill the sequential openings.

In short, replacement planning consisted of a periodically updated table of
employees who might be nominated if a need arose. This type of planning focused
on the high-potential candidates (replacement track stars), all ready to step into vacant
positions, and in doing so set off a chain effect throughout the organization. This model
assumed that people have single careers within one organization. Thus, replacements
were replicas of the current jobholders.

This planning depended on a stable future, in which the knowledge, skills, attitudes,
and other attributes (KSAOs) of future managers looked pretty much like those of the cur-
rent managers. Jobs of the next 5 to 10 years were assumed to be identical to the existing
jobs. Organizational structures (i.e., how the organization was set up along divisional lines,
product lines, or functional lines) were unchanging, and few new competitors were seen
on the horizon. Obviously, this type of scenario just doesn’t exist for most companies.

In replacement planning, the starting point was the job, whereas in succession man-
agement, the starting point is the strategy of the organization. Employees are selected
on the basis of long-term goals, and the developmental plans for employees are aligned
with strategic plans, not position replacements.

A case might best illustrate how succession management aligns with strategy. Tradi-
tionally, the goal of a large utility like Ontario Hydro was to provide safe, reliable energy.
Its core competencies were reliability of distribution, measurement of consumption,
and the maintenance of its power plants. However, deregulation and a more competi-
tive environment forced Ontario Hydro to compete on price and services. Sales and
marketing were the new competencies needed. The strategy changed from providing
energy to marketing energy. Thus, in the long run, Ontario Hydro must identify or
develop managers who have not only sales and marketing abilities but also the ability
to change a production culture to one of marketing.12

TIME HORIZON
The traditional planning approach was concerned with immediate and short-term replace-
ments. Who is our backup for the vice-president we are planning to promote in 6 to
12 months? A strategic focus of under one year is a “business as usual” perception, which,
if repeated, will not be true over a 10-year period. This short time perspective does not
allow for the intake or career management of those with different skills in growth areas.

Succession management looks at a longer term (after ensuring that immediate
replacements are in place) and focuses on a future of two years or more. Obviously,
this is harder to do, and so, rather than identify one replacement, succession managers
identify talent pools.

TALENT POOLS
Traditional models of HR planning looked at succession as the passing of the baton to
the next capable runner. Managers would identify their top performers and groom them
for success. Sometimes two or three successors would be identified, and they would

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NEL170 Strategic Human Resources Planning

be in a race to the finish line of executive promotion. This practice may have worked
when organizations consisted of dozens of levels, each manager having many assistant
managers. However, currently organizations have found that their designated backup
personnel fill only 30 percent of the open positions for which they were slotted.13
Flatter organizations with fewer “apprentices” can no longer rely on this approach.
The key is not to develop a specific successor to fill any position (done by about one-
third of organizations) but to develop several multiple successors (about two-thirds of
organizations do this) for every position.14 The place to start is with positions that are
difficult to fill because of talent shortages. More importantly, organizations have moved
beyond succession planning just for CEOs and top executives. They define talent much
more broadly and attempt to have potential employees in place for any key position.

As employees cannot trust organizations to provide lifetime job security, so too
organizations cannot rely on single individuals or a small group of employees for their
succession plans. Organizations are trying to identify and develop as many employees as
possible to ensure employee departures and changing needs will not leave them harmed.
But what is the right number of employees to develop? One rule of thumb that David
Ulrich and Norm Smallwood use in their consulting and research is that about 10 to
15 percent of the workforce is high-potential talent.15

At MDS, a medical supply company, many of the high-potential employees are
not aware of being tracked, because “we do not want to create a culture in which some
people feel they are special and others feel their potential is not being recognized.”16

However, by not telling employees this, companies risk having employees leave the
organization for one that offers better opportunities, and companies also risk having to
groom someone who may not want the job. (Nevertheless, most employees realize their
special status through the frequency of their promotions, assignments, and training.)
Employers must avoid promises such as “You will become CEO in five years”; such
promises are an implicit contract that may be judged to be binding.

Does identifying many successors solve these problems? Surely competition among
successors will ensure that the best candidate wins by trying harder and demanding
better training. Furthermore, if one successor does not develop to the potential that
was anticipated or quits the organization, then others are willing and ready. But this
approach has problems too. One is that candidates might sabotage each other by not
sharing important information or by raiding key employees to improve their own track
records. As well, many might engage in managing impressions and performing for short-
term results in order to be evaluated more highly. This strategy does not encourage team
playing, which is a force in organizational culture.

There are no easy solutions to these problems. The key is to communicate to these
star employees that they are valued and that they have leadership potential, without ever
promising anything. Another approach is to tell high-potential employees about their
status, and then explain that they will be given a series of developmental challenges,
and their potential will be continually assessed.

Any organization needs a pool of talent and must develop many employees with flex-
ible job skills and competencies. A “pool” is a good description of the next generation of
talented leadership because the term implies fluidity and responsiveness to the impact of
forces. The talent pool is considered a corporate resource and is not the property of indi-
vidual organizational units. This evolution from personnel planning to succession manage-
ment has led to a model of generating pools of leadership talent within an organizational
context of global competition, environmental turbulence, de-layered organizations, and new
technologies. Talent segmentation, the identification of employees who are critical to the
success of the organization, is expected to become as important as customer segmentation.17

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NEL 171CHAPTER 7 Succession Management

Furthermore, a succession management approach should not only depend on internal
candidates, but also track external candidates. Rather than rely on inbred internal man-
agers, the new generation of succession managers tracks high performers in the external
market, thus ensuring that new skills and ideas flow into the organization. Large compa-
nies such as IBM and AT&T have recruited over half their executives from outside the
organization to obtain the skills that these mega-companies were unable to predict they
would need or to develop internally. HR Planning Notebook 7.3 compares the advantages
and disadvantages of internal and external candidates. The list of advantages of internal
candidates is more robust than for those of external candidates, and the reality is that
about two-thirds of internal candidates do succeed.18 Moreover, it appears that when a
company is doing well, internal candidates are favoured to sustain high performance,
because they possess valuable firm-specific knowledge.19 But overall, it appears that
companies that are performing well do better by hiring from within, and those companies
that are struggling show better returns by hiring outsiders.20 Interestingly, it appears that
if the former CEO stays in the company (usually as chair of the board), this retention
has a pronounced effect in preventing the new CEO from making significant changes.21

RATING SYSTEM
Traditional planning relied on the identification of the replacement people by a single
rater. Previously, only the boss of the high-potential employee supplied information
about that employee, and the information on which succession plans were based could
be both out of date and unreliable. The gathering and recording of these judgments may

HR PLANNING NOTEBOOK 7.3

INTERNAL VERSUS EXTERNAL

Advantages of Internal Candidates

• Organizations have more and better information
about internal candidates.

• Organizations that offer career development and
opportunities to internal candidates increase com-
mitment and retention among their employees.

• Internally developed leaders preserve corporate
culture.

• Internal candidates can hit the road running, because
they know the organization, its people, and its pro-
cesses. Other employees know the internal candi-
date, and there is less internal disruption waiting to
see who the new executive is and what changes
he or she will make. Internally chosen executives
do not replace those who report to them as often
as external candidates do; externally chosen can-
didates often get rid of the “old guard.”

• Recruitment and selection costs are lower.
For example, the replacement cost of a CEO is
estimated to be $750 000, including the use of
a search firm and lost opportunities getting the
external candidate up to speed. Additionally,
internal candidates do not have to be compen-
sated at the higher levels demanded by external
candidates (who face the risk of starting in a new
organization).

Advantages of External Candidates

• The external candidate may have better skills to
lead the organization through a major transforma-
tion or change in strategy.

• The external candidate brings new knowledge and
skills to the organization and prevents the organi-
zation from becoming inbred and stale.

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NEL172 Strategic Human Resources Planning

have been seen as a personnel function, which incorporated little understanding of the
real needs of the organization. Thus, managers may not have bought into the process.

In a succession management approach, several raters give current evaluations on an
employee’s performance. The increasing use of 360° feedback mechanisms sheds light
on various aspects of any candidate’s style and performance. HR Planning Notebook 7.4
compares replacement planning and succession management.

SUCCESSION MANAGEMENT PROCESS
The succession management process links replacement planning and management devel-
opment. Until recently, in some organizations, succession planners worked with one
database, management trainers with another. Now, both databases are integrated, with
succession managers working in strategic planning committees, performance manage-
ment groups, and organizational learning and training functions.

The succession management process is simple to understand but difficult to imple-
ment. The process involves five steps, each of which we will now consider in some detail.

1. ALIGN SUCCESSION MANAGEMENT PLANS WITH STRATEGY

Management development must be linked to business plans and strategies. If the busi-
ness plan focuses on global markets, then managers have to be trained to manage global
businesses. How does this translate into everyday skills? To build global talent, an
organization could start by asking these questions: What are the specialized skills and
perspectives necessary to compete globally? How many managers possess these skills?
What percentage of employees could represent the firm to the world? How many could
have an extended dinner with key international customers?22

The strategic connection is important, so organizations must start with the business
plan. Using this, coupled with environmental scanning, managers try to predict where
the organization will be in 3, 5, or 10 years.

A manager rates the potential of an employee.

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NEL 173CHAPTER 7 Succession Management

2. IDENTIFY THE SKILLS AND COMPETENCIES NEEDED TO MEET STRATEGIC
OBJECTIVES

From the strategic plan, managers can then develop a list of the employee skills and
competencies needed. There are at least two approaches to identifying the charac-
teristics of successful managers: the job-based approach and the competency-based
approach.

JOB-BASED APPROACH The first impulse is to start with the job. We know that employees
have jobs with duties and responsibilities. The job-based approach suggests that
employees who have significant experience as managers, and who have acquired job
skills such as motivating, delegating, marketing, or managing finances, will make suc-
cessful managers.

Others suggest that this job-based approach to successors is inadequate because
jobs change rapidly. Furthermore, the increase in knowledge work has led many orga-
nizations to search for a different approach to employee development, particularly for
those employees at the managerial level. Therefore, many organizations are turning to
a competency-based approach, in which the capabilities of individuals are the primary
focus.23

COMPETENCY-BASED APPROACH Competencies are groups of related behaviours that are
needed for successful performance.24 A competency can comprise skills, abilities, knowl-
edge, and personal characteristics (ability to motivate others, for example25). Competencies
are measurable attributes that differentiate successful employees from those who are not.
These competencies are a collection of observable behaviours and can be “hard” or “soft.”

HR PLANNING NOTEBOOK 7.4

COMPARISON OF REPLACEMENT PLANNING WITH SUCCESSION MANAGEMENT

FACTORS PLANNING MANAGEMENT

Environment Stable Dynamic

Focus Jobs Strategy

Time frame 6–12 months 2+ years

Selection criteria Job experience Competencies

Appraiser Immediate manager 360° feedback

Selection pool Internal Internal and external

Successors Slated individuals Talent pools

Development Limited Flexible, multiple

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NEL174 Strategic Human Resources Planning

Hard competencies might be the ability to build new technologies. Soft competencies
might be the ability to retain top talent.26 Given an uncertain future in which skill needs
change rapidly, succession management should focus on the development of competencies.

Consulting firms are the perfect example of companies in which the skills and capa-
bilities of individuals drive the business, and business opportunities drive the develop-
ment of new capabilities. Thus a list of skills (rather than jobs or positions) forms the
basis for succession management. Rather than moving up a career ladder, individuals
move through a certification process, developing increasingly complex capabilities along
the way. There may be several skill acquisition paths, rather than one sure path to the top.

A good place to start preparing a list of competencies is to look at what experts
have said about the competencies of successful managers. Many lists are available that
outline the kinds of generic skills and competencies managers should possess. HR Plan-
ning Notebook 7.5 presents a list of these characteristics.

The skills that managers need to possess are endless, and each “expert” develops a pre-
ferred list. These lists could be used as a starting point and then be customized to identify and
develop managers in any organization. By emphasizing competencies rather than job skills,
individuals will be more flexible in adapting to changing organizational needs. (“Skills” and
“competencies” are terms that are often used interchangeably. However, skills are narrower
and refer more specifically to skills for one job; competencies are broader and can be applied
to many jobs at many levels. For example, proficiency in PowerPoint and installing Windows
are skills; the abilities to think creatively and work in teams are competencies.) Catano and his
colleagues provide a full discussion of competencies; they distinguish between several types:

• Core competencies: Characteristics, such as thinking skills, that every member of
the organization is expected to possess

• Role or specific competencies: Characteristics, such as business knowledge, shared
by different positions within an organization

• Unique or distinctive competencies: Characteristics, such as expertise in media
relations, that apply only to specific positions within an organization27

HR PLANNING NOTEBOOK 7.5

MANAGERIAL COMPETENCIES

• General mobility skills and knowledge: These
competencies facilitate reemployment and include
effectiveness in group process, communication
skills, and flexibility and adaptation.

• General managerial core competencies: These com-
petencies were identified by studying successful
managers and include “being able to build a cohe-
sive team” and “being able to persuade employees
to accept much needed organizational changes.”

• Detailed, job-specific competencies: Job-specific
competencies vary by function, but in HR would
include “the ability to implement a change pro-
gram” and to “identify the best selection tool to
identify high-potential candidates.” These abilities
would vary by level, with a junior manager mas-
tering the ability to identify performance gaps in
a subordinate and a senior manager being able to
initiate change programs to improve performance.

Source: Adapted from E.H. Burach, W. Hochwarter, and N.J. Mathys, “The New Management Development Paradigm,” Human Resource Planning,
Vol. 20, No. 1 (2000), pp. 14–21.

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NEL 175CHAPTER 7 Succession Management

3. IDENTIFY HIGH-POTENTIAL EMPLOYEES

After we know what competencies are needed, we can turn to the identification of
employees who might ultimately acquire these sets. Regularly scheduled discussions about
succession force the leaders of the organization to think about the future of the business
and the kinds of employee skills needed to facilitate the chosen strategy. By concerning
themselves with the future directions of the organization, executives focus on the managers
who will guide that future. The performance appraisal process becomes meaningful and
not just another personnel form to complete. Executives come to “own” the succession
and development plans, because they are integral to the success of the organization.

In HR, we often state that the best predictor of future performance is past per-
formance. Executives must be able to move beyond descriptions of high-potential
employees that use descriptions such as “She is very bright and very strategic” and “He
has the support of his team” to listing specific achievements.28

Organizations use several approaches to identify managerial talent, including the
following:29

1. Temporary replacements: At the most primitive level, most individual managers
will have identified a designated backup and potential successor. This is done
in case the manager is away from the office for extended periods (e.g., vaca-
tions, training). A manager who fails to pick a successor may never be pro-
moted, as no replacements would be ready to succeed him or her.

2. Replacement charts: At the next level, some organizations prepare replace-
ment charts with predicted departure dates of the incumbents, along with
a shortlist of possible successors. This is usually done around performance
appraisal time, using the performance evaluation data. Typically, a handful
of senior executives targets a diverse list of employees for growth and cre-
ates annual development plans. These executives stay in touch with each
individual assigned to them and become responsible for the development
of the leadership competencies of those individuals. The list identifies those
candidates who are ready now, those who will be ready in three to five years,
and the long shots. These approaches tend to replicate current strengths (and
weaknesses) and are not necessarily future oriented, nor are they strategi-
cally aligned with the needs of the business. This stair-step approach is too
rigid during times when organizational structures are changing rapidly and
employee loyalty is weak.

3. Strategic replacement: A more advanced succession management program
exists in an organization that is less inclined simply to replicate existing
incumbents, but instead identifies the leadership competencies it needs,
on the basis of organizational plans. The organization then tries to support
and train these managers from within. The identification of high-potential
people moves beyond the evaluations conducted by one or two managers.
The Public Service Commission of Canada, for example, uses a formal
assessment centre to identify those public servants who will become the
future executives in the federal public service. Wary of evaluations done by
only one individual with one perspective on employee performance, many
organizations are moving to a 360° evaluation. For many employees, such
an evaluation is the first time they have received feedback on how others
perceive them. Some employees have likened the experience to holding up a
mirror, others to a breath of fresh air.30 Employees who had undergone 360°

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NEL176 Strategic Human Resources Planning

feedback reported that they felt their peers often knew better than their man-
agers how to improve their performance.

The above three systems favour the selection of internal candidates. As a result,
these systems have a motivating impact on employee performance. However, they are
limited in their ability to introduce new ways of thinking and working, and may not
suit the strategic direction of the organization. In the next approach, the managers more
actively scan the environment to identify and retain top talent.

4. Talent management culture: Many organizations, whose CEOs lie awake at night
worrying about their ability to find and keep top talent, have adopted a talent
management culture.31 The winners in the war for talent have developed a
talent mindset—that is, they believe that talent matters and it must be devel-
oped not only at the top level but also at all levels. Managers are committed
to define and model an employee value proposition that answers the question,
“Why would a talented person want to work here?” The employee “brand” is
managed as much as the company brand. The organization wants its reputa-
tion (i.e., its brand) to be one where current and future employees believe that
it is a great place to work based on attributes that candidates desire. See HR
Planning Today 7.1 for a discussion of brand positioning to attract and retain
employees. Organizations with employer brands outperformed others in three
critical areas: revenue, net income, and share price.32 Managers actively scan
the environment (e.g., for the actions of their competitors or the actions of
the world’s best industry leaders in other areas with overlapping functions,
such as finance or logistics) looking for external talent. They have developed
both internal and external lists of high-potential candidates.33

Those with a talent management culture use conferences to identify top talent.

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NEL 177CHAPTER 7 Succession Management

Recruitment is opportunistic—that is, when a top candidate is found, that person
is hired regardless of whether there is a vacancy. For example, MDS is so interested in
securing talent that it will hire even when no position is open, and make that person an
“executive-in-residence” and give him or her a special project to manage until a vacancy
arises.34 As David Guptill, vice-president of HR for Lafarge Canada, a large supplier of
construction materials, states:

What keeps me awake at night is my very thin bench strength. … We are
resisting that temptation to scale back on strategic recruiting. And when I say stra-
tegic recruiting, what I mean is that you don’t wait for a vacancy and the predicted
retirees. I and our senior managers are always on the lookout for talent that may be
available. If I find a very talented person … my freedom is to go out and hire that
person whether we have a vacancy or not.35

The process of continually searching for talent is correlated with success.
A McKinsey study found that nearly one-third of HR directors at top-performing
companies constantly search for talented executives, contrasted with less than 10 percent
at average-performing companies.36 These talent management companies analyze turn-
over statistics and always include in their reports the reasons for the voluntary turnover.
Managers, not HR, have the responsibility for identifying and cultivating talent.

Finally, some companies operate with all four approaches, using replacement plan-
ning for highly predictable jobs such as accounting, and talent management to deal
with rapid changes in strategic needs.

Assessing employees to identify high-potential candidates must be done both fairly
and accurately: fairly so that employees buy into the process and feel that the search
for talent is an equitable procedure, and accurately so that the selection process is both
reliable and valid. Organizations typically use the direct supervisor’s informal judgments
and formal evaluations such as performance appraisals and assessment centres. (More
information can be found in the performance evaluation chapter of any introductory
HRM text.) Caterpillar’s annual talent assessment includes the employee’s manager, the
business unit manager, and the executive office. The discussion centres on the employee’s

HR PLANNING TODAY 7.1

BUILDING THE BRAND: AN EMPLOYEE VALUE PROPOSITION

Some companies develop an employee value proposition
(EVP) that will help attract and retain employees. They base
this EVP on concepts that they have learned in customer
attraction and retention. An EVP is a brand positioning
aimed at employees so that the company will be seen as
an employer worth working for, and all company messages
sent to the labour market are compelling and consistent.
Key candidates seem to be attracted to companies that
pose one of four brand positions:

• A “winning” company, which is characterized by
growth and development

• A “big risk, big reward” company, which offers
great potential for advancement and compensation

• A “save the world” organization, which is attractive
to those wanting a mission

• A “lifestyle” company, in which employees want
flexibility and a good relationship with the boss

Sources: S. Cliffe, “Winning the War for Talent,” Harvard Business Review, Vol. 76, No. 5 (September/October, 1998): pp. 18–19; and S. Hood,
“The PR of HR,” HR Professional (February/March 2001): pp. 17–21.

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NEL178 Strategic Human Resources Planning

next three moves and the kinds of career experiences needed for these moves.37 HR
Planning Notebook 7.6 contains a brief description of common assessment methods.
Usually about 10 percent of employees are identified as high potential. Syncrude Canada
Ltd., an oil producer, with headquarters in Fort McMurray, Alberta, has identified about
8 percent of its 3600 employees as high potential.38

However, the use of annual reviews of talent can result in a mechanical approach
leading to the goal of completing the forms provided by HR, rather than quality dia-
logues about leaders. Some managers simply update forms to meet a deadline. A better
process would be to commit to quarterly reviews and the allocation of one full day
to choose the top candidates by ranking them against all other candidates. Even these
discussions can become politicized when:

• Executives rate their own candidates too positively
• People are hesitant to criticize the choices of others
• Members distrust the motivation of others’ recommendations (“passing the

trash”)
• Running conflicts between executives result in cheap shots about candidates
• Information about the best players is withheld as executives want to own this

talent

HR PLANNING NOTEBOOK 7.6

TECHNIQUES FOR ASSESSING EMPLOYEE POTENTIAL

• Performance appraisals: Managers identify
high-potential employees through performance
appraisal systems. Raters, who may include the
supervisor, colleagues, customers, and subor-
dinates of an employee, evaluate the employee
against some pre-developed standards. The goal
is to identify and communicate the employee’s
performance strengths and weaknesses. The
information is then used for developmental pur-
poses so that gaps in performance can be closed.
High-potential employees are tracked in this way
using a standardized organizational assessment
tool. Managers are forced to identify high-poten-
tial employees through performance appraisal
systems and may be rewarded for developing
employees.

• Assessment centres: Assessment centres involve
a process by which candidates are evaluated as
they participate in a series of exercises that closely
resemble the situations faced on the job. Simula-
tions include negotiating a merger, handling the
press, managing interdepartmental conflicts, or
making a decision without all the facts. Trained

and experienced managers observe the candi-
dates’ behaviour during this process and provide
an evaluation of their competence and potential.
The newest form of assessment centre is the
acceleration centre, in which the first stop is a
website where candidates learn about the ficti-
tious company they will manage for a day. All
testing, correspondence, and decisions are com-
pleted online, enabling the assessors to compare
candidates more objectively.

• Human Resources Management Systems (HRMS):
Large amounts of information about employees’
KSAOs can be stored in databanks and used to
identify employees with needed skills. Employees’
files can document their experiences, skills, abili-
ties, and performance evaluations. Employees’
interests and career objectives may also be
recorded. Basic matching to identify high-poten-
tial candidates is simplified with an effective
HRMS. A useful feature of an HRMS is its ability
to construct scenarios. Planners can create “what
if?” models to determine the effect of employee
movements.

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NEL 179CHAPTER 7 Succession Management

To minimize the politics involved in identifying talent, management should develop
a set of principles such as “Talent is managed in the larger interests of the company.
Managers are simply stewards of this talent, and companywide interests prevail.”39

4. PROVIDE DEVELOPMENTAL OPPORTUNITIES AND EXPERIENCES

Before we discuss the methods used to develop managers, we should first consider two
issues:

• Are leaders born or made?
• Should organizations produce their own managerial talent or buy it on the

open market?

Born or made? Many great leaders have had no formal management training.
Shouldn’t we just select leaders with the inherent qualities of leaders and not try to
teach leadership skills?

Peter Drucker, considered by many to be the founder of management as a discipline,
is credited with saying, “Most managers are made, not born. There has to be systematic
work on the supply, the development, and the skills of tomorrow’s management. It
cannot be left to chance.”40

Buy or make? Organizations invest many dollars and other resources to develop
managers, but perhaps experienced, trained managers could simply be hired from other
organizations. One survey found that more than half of the companies need to hire an
outsider because no insider has been developed to assume the CEO role.41

Some organizations do prefer to pick up their needed executive talent by buying
it on the open market. For example, Elliot Whale, president and CEO of Dylex Ltd.,
had been president of Toys “R” Us (Canada) and director of player personnel for
the Toronto Blue Jays baseball club before he moved to Dylex. Selecting outsiders
allows companies to bring in fresh perspectives, people who can lead the organiza-
tion through a transformation. By bringing in an outsider, the board of directors
sends a strong message to employees and shareholders that the old way of doing
things is going to change.42 Other organizations feel strongly that they want to
indoctrinate and train their own leaders, who then have a deep commitment to the
organizational vision.

There are no easy answers to these questions. Organizations may find outstanding
leaders by chance, or they may commit to the development process. Some may choose
to hire from the outside to obtain fresh approaches; others will commit significant
time and money to train their own managers. However, most large organizations have
a policy of promotion from within. There are many advantages to this: the organiza-
tion has accurate records of employees’ past performance, and employees understand
and are committed to organizational objectives, know the ropes, and know how to get
things done. Some estimate that one-third to one-half of new CEOs fail within the
first 18 months. Newcomers apparently fail at understanding the political situation or
overestimate an organization’s willingness to change (often the core reason that they
were hired).43 Another reason to recruit internally is that CEOs recruited from the
outside delivered annual returns 3.7 percent lower than insiders.44 Plus, external hires
are paid about 18 percent more than internals, with little evidence that they produce
better results.45 Most large organizations have formal management development pro-
grams to ensure a ready supply of “promotables.” Let us look at some of the methods
such organizations use.

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NEL180 Strategic Human Resources Planning

MANAGEMENT DEVELOPMENT METHODS In the succession management process, the focus
in management development is on the development of competencies, not just on
job preparation. Because the goal is to develop many skills that may be needed in an
uncertain future (in contrast to simply replicating the skills of the present incumbents),
management is much more open to various approaches to develop the talent pool.
More traditional approaches might have relied on a senior leadership course and one
developmental assignment, perhaps mimicking exactly what the current CEO did. The
key point is that the approach has changed from one of providing training to fill jobs
to one of providing experiences to realize leadership potential. The most common
development methods are promotions, job rotations, special assignments and action
learning, formal training and development, and mentoring and coaching.

PROMOTIONS A promotion refers to an employee’s upward advancement in the hierarchy
of an organization and usually involves increased responsibilities and compensation.
Traditional models of management development saw managers moving up a pyramid,
managing larger and larger units until they reached their appointments at the top. Each
organization had its favourite route to the top, some through sales, others through
operations. These paths became worn over time, and few succeeded by using other
paths, such as an HR track. One organization used a system of temporary rotations,
resulting in a win-win combination. Senior executives nearing retirement were given the
option of a week’s vacation in every month, which they welcomed, and were replaced
by high-potential employees who could try new leadership skills in a safe setting. In
flat organizations, where promotions are rare, a preferred developmental method is job
rotations—developing managers horizontally rather than vertically.

JOB ROTATIONS Job rotations are lateral transfers of employees between jobs in an
organization. Rotations involve a change in job assignments but not necessarily more
responsibility or money. For example, one way of orienting a new employee quickly is
to place him or her in a new department every few weeks, providing an overview of the
organization. The CEO of Maritime Life Insurance believes that rotation is the best
indicator of whether an employee is ready for a top position. To avoid costly placement
decisions, staff with potential are placed in a variety of roles across the organization.
Succeeding at rotation is a prerequisite for a top-level position.46

Rotations have several motivational benefits for employees, including the reduction
of boredom and fatigue. Trying out new jobs also benefits employees who have reached
a career plateau. The development of additional skills may increase an employee’s job
and career prospects. Almost all the research suggests that job rotation makes employees
more satisfied, motivated, involved, and committed.47

From the organization’s standpoint, rotations are useful for orientation and career
development. Rotations allow an employee to increase his or her experience. A common
use of job rotation is to take a functional specialist, such as an accountant, and rotate
this specialist through both HR and operations in preparation for management posi-
tions. An information technology specialist, before a rotation in sales, might try to sell
his idea to management by saying, “We have to invest in a multiprotocol router,” and
might be met with complete incomprehension. After a rotation through the sales depart-
ment, the same specialist might sell the same program by explaining, “We’re building
an infrastructure so that salespeople can access product or inventory information from
anywhere.” The technician has learned a business skill.48 Jet Form, an Ottawa-based
business with about 650 employees, uses cross-functional mobility as a key part of its

Promotion
An employee’s upward
advancement in
the hierarchy of an
organization

Job rotations
A process whereby an
employee’s upward
advancement in
the hierarchy of an
organization is achieved
by lateral as well as
vertical moves

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NEL 181CHAPTER 7 Succession Management

strategic planning.49 The results are encouraging, and employees are regularly rotated
between functions to increase their knowledge and skills.

Besides the additional knowledge of the functional areas, such as sales, and man-
agement areas, such as business knowledge, the rotated employee is making contacts
and establishing a network that might prove useful in the future. Learning new ways
of doing things, with different co-workers and bosses, also might make employees
more adaptable in their managerial jobs. The research shows that rotation improves
an employee’s knowledge of the organization (e.g., of business, strategy, and contacts)
and improves his or her ability to cope with uncertainty. Furthermore, employees who
have tried out several jobs gain a better insight into their own strengths and weaknesses.
However, job rotation produces generalists and should be supplemented by training
for any specific skills needed.

Of course, the downside of employee rotations includes the increased time needed
to learn the new jobs, the cost of errors while learning, and the loss of efficiency that
otherwise is gained through repetition and specialization.50 In other words, workload
may increase for the employee while productivity decreases, and other employees absorb
additional work and stress in efforts to socialize, orient, and train the newcomer.

At the managerial level, employers should be concerned about producing a short-
term orientation in the organization’s leadership ranks. Employees in six-month jobs
may put their efforts into creating fast results, which might hurt the unit in the long
term. For example, employees with a short-run focus may neglect plant safety in a
rush to exceed production quotas. Furthermore, the rotation of managers places new
expectations on performance, creates new goals, and results in reassignment of work,
producing stress on the unit managed by rotation.51

One approach is to give an employee a number of assignments within the company
or a related sector. Ultimately, managers may be better formed by developing skills
horizontally, throughout an organization, rather than by developing specialized skills
vertically, up a career ladder.

SPECIAL ASSIGNMENTS AND ACTION LEARNING On-the-job learning is still a favoured path to
the development of managerial skills. Most organizations test high-potential employees
by giving them an assignment in addition to their regular duties. For example, the
manager of corporate banking might be placed on a task force that is considering the
acquisition of another bank. A manager who needs international experience might
be sent to work in China with a vendor to the company. In another case, a team of
managers might be given a special assignment, such as developing an equity plan for
the organization or developing an e-commerce plan for the company. These types of
special projects enable candidates for future executive positions to network and test
their skills in new environments. Mistakes must be tolerated, as candidates may quickly
assume that these special assignments are synonymous with failure, fostering a culture
of fear in which no employee dare be innovative or take bold measures, and, finally,
derailment from the fast track. Recognizing the value of experience, even negative ones,
is important. For example, there is a story about the executive called into his boss’s
office expecting to be fired because of a business decision that cost the company a mil-
lion dollars. The CEO instead gives him another special assignment, reasoning, “Why
should we fire you? We just invested $1 million in your development.” Interviewers for
executive positions routinely ask candidates about a difficult challenge or unsuccessful
project. If the candidates indicate no failures, the executive search firm concludes that
the candidate is not open about these experiences, or he or she may not have the skills

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NEL182 Strategic Human Resources Planning

to handle an unsuccessful project in the next assignment. The best assignments are
those that entail a high degree of risk and accountability, such as launching a new busi-
ness or turning around a struggling project. If these are coupled with decision-making
authority and the opportunity to manage a large group of people, this is a recipe for
producing effective executives.

FORMAL TRAINING AND DEVELOPMENT Management training and education is big business.
Hundreds of thousands of dollars may be spent preparing one executive to become the
CEO of the organization. This cost appears relatively minor when it is estimated that
the total career investment in an individual employee is 160 times the initial starting
salary.52 In this book, we use the term management development, but others label a similar
process executive education or leadership training or a combination of any of these words.

The majority of companies use traditional and passive instructional techniques and
rate them least effective, but they are fast and easy to use. Most use lectures, seminars,
and discussion groups more often than behaviour modelling and experiential learning.53
Senior managers need the soft skills of delegation and motivation, rather than hard
technical skills such as website development or benefits management. Thus, we would
recommend that role-playing, case studies, behaviour modelling, and action learning,
which are effective techniques, be used as training methods for management develop-
ment. Through case studies and action learning, the courses offer managers a chance
to practise and receive feedback. Unlike professional athletes or musicians, managers
seldom get a chance to practise their skills and try out new ideas and methods.

MENTORING AND COACHING Many very successful managers explain that their successes
resulted directly from having been mentored: A senior executive took an interest in
them and their careers at a critical time in their lives. Mentors are executives who coach,
advise, and encourage junior employees. The mentor takes an active interest in the career
advancement and the psychosocial development of the protégé. Career development
aspects include examining approaches to assignments and learning how tasks should
be handled, which conferences or networks have high career value, and which senior
managers to emulate. Psychosocial considerations include building the self-confidence
of the protégé, as well as offering counselling and friendship to make him or her aware
of the political open doors and open pits of the organization. Studies show that pro-
tégés do indeed derive these psychosocial benefits (increased confidence, self-esteem,
reduced feelings of isolation etc.) as well as career benefits (increased compensation,
promotions, career development opportunities etc.).54 One company offers coaching
to help high-potential candidates understand the executive derailers—those personality
traits that might cause an otherwise effective executive to fail (such as arrogance, micro-
management, risk aversion, volatility, and low tolerance for ambiguity).55

Mentoring used to happen informally, but organizations have recognized the value
of having a senior manager take a career interest in a junior employee and so have started
formal mentoring programs. One survey showed that 70 percent of highly productive
organizations have mentoring programs, and employees in these programs report greater
career satisfaction and experience faster career growth.56 These programs link execu-
tives who have the motivation and time to nurture managerial talent with employees
who are motivated to advance quickly. Two-thirds of the top-performing companies
provide high-potential employees with frequent access to the CEO, and opportunities
to interact on projects with senior managers.57 Mentors are almost always more senior
people who volunteer to be mentors within an organization, while coaches tend to be

Mentors
Executives who coach,
advise, and encourage
junior employees

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NEL 183CHAPTER 7 Succession Management

paid counsellors from outside the organization. Internal mentors are best for strength-
ening and assuring continuity of organizational culture.58 The advantages of external
coaches are described in HR Planning Notebook 7.7. Closely related to mentoring is
sponsorship. In one study of the careers of CFOs, many described the importance of a
sponsor, a manager who provided a critical opportunity on the career journey.59

While it is necessary for discussion purposes to separate management development
methods, all companies will use a combination of methods. Some focus on formal pro-
grams, such as a three-week leadership course followed by an assignment in a foreign
country. Other companies, such as 3M, allow their employees to choose assignments
and to work on ad hoc committees to manage new projects, as well as giving them free
time to tinker and play with ideas. Cisco, a leader in hardware and software technology,
uses the 3E Model: 70 percent of development occurs through Experience (assignments,
rotations, and special projects), 20 percent through Exposure (feedback, mentoring, and
shadowing), and 10 percent through Education (readings, e-learning, and courses).60
The choice of a method depends on the employee’s learning style and the goals to be
achieved. Learning about foreign cultures is best done by spending time in a foreign
office or with representatives from overseas, not from a book; nor is shadowing an IT
employee the best way to learn about IT.

Table 7.1 outlines the most common leader development activities, and how HR
managers rate their effectiveness.

Some companies follow these processes but press the fast-forward button for can-
didates to intentionally accelerate their development. These candidates are part of an
acceleration pool and

• Obtain assignments that offer the most intense learning and high visibility
• Spend less time in assignments

HR PLANNING NOTEBOOK 7.7

BENEFITS OF EXTERNAL COACHES

Sources: Adapted from L. Hyatt, “Best Practices for Developing Great Leaders,” Workplace Today, January 2003: 14–17; and G. Voisin, “When to Use
an Internal or External Coach,” HR Professional, June/July 2001: 30–33.

FOR THE ORGANIZATION FOR THE INDIVIDUAL

Retain high performers with incentives other than
financial rewards.

Reconnect the individual with personal values or
missions.

Develop key employees for succession planning. Provide clarity and focus to accelerate the achievement
of goals.

Guide individuals and organizations through transition. Compress learning time to optimize skills by building
competencies faster through one-on-one coaching.

Change skills and attitudes for long-term sustainable
results.

Translate leadership theories and concepts into “useful
insights” to affect communication, decision making,
and overall strategies.

Give new perspectives on business experience and practices.

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NEL184 Strategic Human Resources Planning

• Are given stretch assignments
• Receive more training
• Are given developmental activities designed especially for them
• Are assigned a mentor
• Are not guaranteed promotion61

Companies that do this well are called “academy companies”—a kind of executive
finishing school—known for breeding the best leaders. In Canada, these incubators are
PepsiCo, IBM, General Electric, Procter & Gamble, Petro-Canada, and Manulife Finan-
cial.62 Headhunters go to these companies to poach new leadership blood. These top
companies for leaders offer many benefits, as outlined in HR Planning Notebook 7.8.
Does this mean that companies risk losing leaders if they invest in them? Not neces-
sarily, according to research by Canadian professors Jack Ito and Celeste Brotheridge,
who concluded that supervisory support for career development strengthens employee’s
intentions to stay.63 Generally, providing opportunities to grow and develop new skills
is seen as a good retention tool.

Another reason for using different methods is that the development of a senior
executive may take 25 years. It is unusual to see a vice-president of a large company
who is younger than 40 years old. So some companies, such as Walmart, start early,
grooming the store managers under a mentoring system to take on more and more
responsibility.

USE
% VERY

EFFECTIVE
% MODERATE OR
EXTENSIVE USE

Special projects within one’s own job
responsibilities

77 69

Special projects outside one’s own job
responsibilities

46 55

Expatriate assignments 26 54

Coaching with internal coaches or mentors 48 45

Formal workshops 85 42

Coaching with external coaches or mentors 28 42

Articles/books 65 27

Tests, assessments, or other measures of skills 52 26

Computer-based learning 38 16

Notes: Leaders rated effectiveness; HR professionals rated usage; table made from bar graph.
Source: Bernthal, P. & Wellins, R. 2006, “Trends in Leader Development and Succession,” Human Resource Planning, Vol. 20, Issue 2, p. 35.

TABLE 7.1

USE AND EFFECTIVENESS OF LEADER DEVELOPMENT ACTIVITIES

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NEL 185CHAPTER 7 Succession Management

5. MONITOR SUCCESSION MANAGEMENT

Some succession plans are placed on an executive’s top shelf, ready to be dusted off to pre-
pare for the annual discussion. They do not form part of a strategic plan, nor are they used
to guide employee development. To measure the effectiveness of succession management,
succession planners used to count the number of predicted “high-potential replacements”
with the actual number of those placed in the position. (For example, in Canada, organiza-
tions have reported that they have 0.59 designated job-ready or nearly ready successors for
every senior executive position.64) However, if the needs of the business change dramati-
cally, this may be a poor way of measuring. Others suggest measures such as the following:

• Increased engagement scores
• Increased positive perceptions of development opportunities
• High-potential employees’ perceptions of the succession management process
• Higher participation in developmental activities
• Greater numbers involved in the mentoring process65

Nevertheless, there are internal ways to judge whether a succession management
program is successful, including HR metrics, which may be viewed as lag measures such
as the following:

• Increased average number of candidates for key positions
• Reduced average number of positions having no identified successors
• Increased percentage of managers with replacement plans
• Increased percentage of key positions filled according to plans
• Increased ratio of internal hires to external hires in key positions
• Increased retention rates of key talent
• Increased percentage of positive job evaluations after promotion

HR PLANNING NOTEBOOK 7.8

ACADEMY COMPANIES

Academy companies offer these experiences to become
top companies for leaders:

• Working abroad/international experiences
• 360° feedback to assess and critique leadership

attributes, skills, and traits
• Assessment centre solely for leadership develop-

ment of high potentials
• Mentor with admired senior leader
• Rotational job assignments

• Spending 10 percent to 24 percent of top leader-
ship’s time on talent management issues

• Organization has special/different career develop-
ment process to retain high potentials

• Organization prepares specific development plans
for high potentials

• Organization makes lateral moves attractive to
high potentials

Source: Donlon, J.P. 2007, “Best companies for Leaders,” Chief Executive, December 2007, 230, pp. 58–62.

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NEL186 Strategic Human Resources Planning

• More positive assessment of the quality of preparedness for new roles
• Increased number of bosses skilled as talent developers66

The above measures need benchmarks, perhaps simply improvements over the previous
year for the organization. For example, one benchmarking organization suggests that effec-
tive organizations have 1.6 candidates for each key role.67 However, one study found that
the single most important driver of an effective plan was that the executive team modelled
the behaviour, believed in it, and held managers accountable (in performance reviews and
bonuses) for developing employees. Top-performing companies allocate 20 percent of execu-
tive bonuses to leadership development and assess them on the ability to retain this talent.68

One expert asked, “If this process worked perfectly and everything happened the way it
was supposed to happen, what would the results look like?”69 The answer? Employees would
receive regular feedback based on the assessment process and would participate in develop-
ment plans. The best result would be an organization with skilled employees prepared to
contribute to the goals of the organization under changing conditions. Organizations mea-
sure their success not only by the percentage of positions filled by designated high-potential
employees but also by attitude surveys of these employees, as well as exit interviews if these
high potentials leave the organization. The word “success” in succession is illuminating in
that studies are starting to show that corporations with strong succession management pro-
grams are higher performers measured by revenue growth, profitability, and market share.70

Another international study surveyed thousands of leaders, employees, and HR
staff from 117 organizations in 14 countries and identified the following characteristics
as critical to perceptions of succession management effectiveness:

• A timeframe for achieving planned action
• Flexible adjustments to changes in strategic plans
• The sharing of information about the nomination process performance and

rankings with identified candidates
• Visible support from top management
• The involvement of line management in the identification and development of

candidates.71

So far, we have examined succession management from the organizational perspec-
tive. We will now consider the employee’s perspective.

EMPLOYEE ROLE IN SUCCESSION MANAGEMENT A top-down,
organization-directed approach to succession management
assumes that employees are ready and willing to be prepared
for the next generation of leadership. A top-down approach
treats employees as pieces in a chess game. But employees are
not pawns; their voices need to be heard.

The first consideration is that an employee’s relationship
with any organization is not permanent. The employee can quit,
or the employer can terminate him or her. Today’s new employ-
ment contract does not guarantee jobs to anyone, even to those
performing competently. The former contract was built on an
implied promise of a long-term, mutually satisfying relationship.
However, market forces create turbulence that sometimes causes
companies to restructure or fail. These changes have resulted in a
change in the psychological contract that an employee has with

An employee has a responsibility to update her skills as part of her
own career planning.

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NEL 187CHAPTER 7 Succession Management

the employer. The traditional employment contract with the organization was built on an
implicit understanding that the employee would work hard, would develop additional skills
provided mainly by the employer, and, in return, would be promoted on a regular basis.
At a minimum, the employer would reward the loyalty and efforts of employees with job
security. This contract is dead. Today’s career model may be perceived as a transactional
one in which benefits and contributions are exchanged for a short period.72 The new
contract, transactional in nature, lists the responsibilities and rights of each party in the
employer–employee relationship, and employees want this contract stated explicitly in
writing. If loyalty to any organization still exists, it is to the professional organization, to
a network of peers, and to certifiable credibility that confers collegiality and respect. HR
Planning Notebook 7.9 contains a comparison of the two concepts of career management.

This transactional view of employer–employee relationships suggests that as organi-
zations develop employees, they must take into consideration employee aspirations and
goals. Employees will participate in management development programs more eagerly
if their goals match the succession plans of the company. Employees will enthusiasti-
cally engage in self-development if they are aware of the strategic goals of a company,
thus enhancing their own job security or marketability. If, for example, employees of
any retailer understood the changing nature of their declining retail business (from the
increased competition of online retailers such as Amazon), they would develop skills such
as geo tracking and logistics, and knowledge about the impact of the complete consumer

HR PLANNING NOTEBOOK 7.9

COMPARING TRADITIONAL AND EMERGING CAREER MANAGEMENT CONCEPTS

Sources: Adapted from D. Hall and J.E. Moss, “The New Protean Career Contract: Helping Organizations and Employees Adapt,” Organization
Dynamics, Winter 1988, pp. 22–37; and E.F. Craig and D.T. Hall, “The New Organizational Career: Too Important to Be Left to HR?” Reinventing
HRM: Challenges and New Directions, R.J. Burke and C.L. Cooper, eds. (New York: Routledge, 2005).

CHARACTERISTICS TRADITIONAL EMERGING

Employment contract Implicit Explicit

Duration Long term Useful term

Career responsibility Employer Self-directed

Career identity Organization Profession/occupation

Benefits Focus on security Focus on experience

Loyalty To the organization Profession, friends, family

Mindset Inward, political Outward, entrepreneurial

Development Formal training Work experiences

Career progression Vertical Horizontal

Employment stability Job security Employability

Role of manager Control/coordination Coach

Career goal Corporate success Meaningful contributions

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188 NELStrategic Human Resources Planning

experience. Managerial preferences cannot be the sole determinant in employee devel-
opment. Career counselling and discussions at performance appraisal time will help
ensure that the employee’s voice is heard. While organizations cannot promise life-
time employment, competition for leadership talent is so intense that high-potential
employees must be given a reason to stay with an organization.

An added benefit of listening to employees is the opportunity to customize the develop-
ment plan. Employees are very aware of their strengths and weaknesses and their preferred
learning styles. One employee might suggest that she could learn decision making by being
given a leadership role; another might prefer a seminar on decision making. Some organiza-
tions, such as Ford Financial, which has 20 000 employees around the world, provide infor-
mation to employees that enable them to make their own career plans. Ford Financial has a
sophisticated skill and competency-based learning program with direct links to the company’s
three core businesses and job requirements. Employees can determine the skills and compe-
tencies needed for any job within the organization, then undertake a self-development plan
to master any of the 15 knowledge domains, 80 functional areas, and 800 separate skills.73

By creating a process that invites employee participation, succession managers are
more likely to gain employee commitment to and ownership of the plans. We turn now
to a discussion of the role of HR in this process.

MANAGING TALENT: THE HR ROLE Most researchers and consultants will argue that the
CEO should own the succession management function, and that HR should simply
provide some tools for doing so. But HR are professionals and know more about suc-
cession management best practices (and pitfalls) than CEOs do. HR should own the
talent management process in order to mitigate three types of risk to an organization:

1. Vacancy risk: Organizations that are unable to fill key vacant positions
quickly with effective leaders may suffer business losses and/or an inability
to move forward on strategic goals.

2. Readiness risk: HR must develop employees so that when opportunities arise,
there are qualified and motivated personnel in place.

3. Transition risk: In addition to preparing employees for key roles, HR must
develop programs to retain key employees, and to monitor competitors and
others to be able to quickly identify external candidates.74

In order to manage these risks, HR promotes a culture of talent management,
develops successors for all key positions, identifies gaps between current competencies
and those needed in the future, and encourages development at all levels.

// SUMMARY
In this chapter, we defined succession management and contrasted it with personnel plan-
ning. The five-step model of effective succession management includes these steps: (1) align
succession management plans with strategy; (2) identify the skills and competencies needed
to meet strategic objectives; (3) identify high-potential employees; (4) provide developmental
opportunities and experiences through promotions, job rotations, special assignments and
action learning, formal training and development, and mentoring and coaching; and (5)
monitor succession management. The employee’s role in the process must be considered.
The HR function has to assume responsibility for the succession management process.

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189CHAPTER 7 Succession Management NEL

KEY TERMS
job rotations p. 180
mentors p. 182
promotion p. 180
replacement planning p. 168
succession management p. 166

DISCUSSION QUESTIONS
1. Ganong Bros., a manufacturer of candy and chocolates, is based in St. Stephen, New

Brunswick. In 2008, for the first time in its 135-year history, an outsider succeeded a
member of the Ganong family as president of the company. (Two children who work
in the business were deemed “not ready.”) This decision is a result of two years of
succession planning by the Ganong board, which is dominated by outsiders. What
are the advantages and limitations of choosing an outsider to head the company?

2. About half of all Canadian companies offer paid leave to volunteer, ranging from
one day to two weeks annually. According to Mario Paron, KPMG’s chief HR officer,
“Employees return with a fresh perspective—new skills learned in a nontraditional
environment and learning and sensitivity in dealing with people from different
backgrounds, that is invaluable when they return to work.”75 Do you think that
volunteering is a good management developmental tool? Why or why not?

3. This chapter has focused mainly on managers, implying that they are the key
talent that needs to be managed. However, there are people who believe that the
organization’s most critical employees are not those who make the highest salary,
but those who have the most impact on the customer: for example, the couriers
at FedEx and the street sweepers at Walt Disney World. Describe why these people
should be considered key talent, and what succession management plans could be
used for them.

EXERCISES
Consider the following three scenarios:

1. Lee Ki Chung managed all the operating systems for 8 Star Manufacturing Company.
Always reliable and never absent, Lee was indispensable. One day, Lee phoned to
say that he had been diagnosed with cancer, had to enter treatment immediately,
and did not know when he would return to the office.

2. The president of Overseas Banking Corporation, the second-largest bank in the
country, had chosen as his successor the vice-president of finance. However, as the
president’s retirement date approached, he began to worry that this star employee
could no longer handle the stress and long hours of banking. The VP was absent
for extended periods as he tried to deal with his son, who was a drug addict, which
in turn caused problems in his marriage.

3. Hi Tech Corp is a company created by the next generation of Bill Gates clones. They
had succeeded in attracting the best and brightest to help them build a billion-dollar
company to develop the ultimate software applications. On Tuesday, October 10,

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190 NELStrategic Human Resources Planning

the entire design team announced they were quitting to start a rival company and
recapture that entrepreneurial culture of the early years.

Could succession management have mitigated the impact on the organization of
any of these situations? How could succession management mitigate the seriousness
of the consequences?

CASE STUDY 1 THE PEOPLE DEVELOPMENT FRAMEWORK
AT FORD OF CANADA

The North American automotive industry has been facing significant challenges in
recent years as the “Big Three” restructure their operations to respond to increased
foreign competition, difficult economic conditions, and shifting demand as con-
sumers migrate toward more fuel-efficient vehicles. In light of these dynamic busi-
ness conditions, Ford of Canada relies heavily on organization and personnel
planning processes and tools to ensure that the organization structure, internal
selection practices, and succession management systems are aligned to support
the future needs of the firm and the needs of its employees. With a strategic focus
on maintaining a “People Development Framework,” succession planning is a key
element of the organization and personnel planning function.

The HR team reviews four major areas of focus in order to make better decisions
about the organization’s future direction for personnel requirements. In addition
to assessing the impact of external factors such as world events, the changing mar-
ketplace, and workforce demographics, team members regularly review the opera-
tional plans in place so that functional HR objectives and action plans are properly
developed and aligned to meet the long-term goals of the business. Ongoing reviews
of the organization structures are conducted to ensure that the delivery of the
organization’s business priorities is achieved in an efficient, flexible, and affordable
manner by assessing factors such as the size of the organization, the percentage
of resources deployed at each level and function, and the attraction and retention
potential of the leadership level and salary grade system. Lastly and most impor-
tantly, the “people equation” is evaluated on an ongoing basis to ensure that the
organization has the right people in the right positions at the right time to help
the organization achieve success.

Personnel development committees (PDCs) play a central role within Ford
of Canada to identify and match employee capabilities to key positions to ensure
appropriate bench strength is in place. Committees exist for three broad levels of
the organization including senior executive, business unit management, and line
management, and PDC composition includes managers from all functional busi-
ness areas to ensure cross-functional opportunities can be efficiently explored and
utilized for employee development. In conjunction with department managers,
PDC members are charged with the responsibility of identifying employees who
demonstrate outstanding leadership abilities, strong and continual learning, and
superior job performance, and then matching employees to key positions.

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191CHAPTER 7 Succession Management NEL

PDCs assess candidate bench strength for particular key positions or job families
using a visual aid called a “T” chart. Employees immediately qualified are plotted
on the horizontal section of the “T” while employees with future potential who
require further development are identified in rank order in the vertical region of
the tool. Using a graphic aid such as a “T” chart allows review committees and
managers to see and compare bench depth across key positions; it further assists in
the communication process as succession planning information moves vertically to
other PDCs as vacancies are being filled or when bench strength is being assessed.

An integral component of the People Development Framework is the engage-
ment and participation of the individual employee in his or her own professional
development and career management. With consultation from their immediate
supervisors, employees are engaged in the process through the completion of a
Leadership Development Employee Profile (LDEP) and an Individual Development
Plan (IDP) on an annual basis. The LDEP acts as an internal résumé to capture
individual employee information for PDC or hiring manager review that includes
current position details, previous Ford position history, the employee’s viewpoint
on Ford, and non-Ford key accomplishments, as well as preferred developmental
assignments.

The IDP reinforces the need for each employee to invest in his or her own
professional development and provides an opportunity for career planning activities
to further develop strengths and areas of improvement in alignment with career
goals and business needs. Plans are developed between an employee and supervisor
that identify developmental actions that improve current assignment performance
and also position the individual for his or her desired future assignments. While
partnership with the supervisor is necessary for establishing the content and imple-
mentation timing of an IDP, it is inherently critical that employees take personal
ownership of the formation and maintenance of their own career plans for this
tool to be successful.

As Ford of Canada business units strive to “do more with less” in a manner
that delivers an efficient, profitable, and competitive position, an assessment of
key position requirements and employee leadership and technical competencies
is critical to ensure that employee developmental needs and placements support
the delivery of the desired business outcomes. The process tools and governance
structure under the People Development Framework serves to reinforce the inherent
linkage and shared responsibility between employee, manager, and PDCs in the
success of the organization and of individual employees.

Source: Case prepared by Ron Derhodge, Human Resources Manager, Parts Distribution Centre, Ford
Motor Company of Canada Limited.

QUESTION
Analyze the effectiveness of Ford’s succession management program. Include in
your report the strengths and weaknesses of the model and suggestions for increasing
its effectiveness.

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192 NELStrategic Human Resources Planning

CASE STUDY 2 EXECUTIVE SUCCESSION MANAGEMENT PROGRAM
AT EMEND MANAGEMENT CONSULTING

When company executives and boards need advisory services on succession, they
sometimes seek external support from consulting firms such as EMEND. Ellie
Maggio, CEO and Managing Director of EMEND, describes the necessary trans-
formed interest of Boards and executives in succession planning:

Over the past decade, succession plans have really become important due to
CEO departures leaving organizations scrambling. Moreover, heightened board
governance and regulatory compliance have raised the bar on this important
function. If succession plans are not implemented, shareholders may view their
investment at risk.

At EMEND, when working with boards, a six-step process is used in developing
executive succession management programs:

1. PLAN
• Determine or clarify CEO and board expectations of the succession man-

agement process
• Ensure top-level responsibility/accountability
• Ensure plan is business oriented, pragmatic, and endorsed at the highest

levels

2. ASSESS
• Review executive contracts for content related to succession plans and

how they may relate to development plans, performance plans, compensa-
tion plans, termination, retirement, organization departure, and transition

• Review existing replacement plans, performance reviews, talent/high
potential/development plans

3. STRATEGIZE
• Engage executives in the development of the new/refined program
• Ensure clear linkages to other programs related to risk management, talent

management, performance management, and compensation programs
• Ensure the succession management method and process is reflective of

stakeholder requirements

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193CHAPTER 7 Succession Management NEL

4. DEVELOP
• Create talent review criteria/competency models for executive and critical

jobs
• Develop talent review tool(s) linked to the leadership development pro-

gram, performance management process, and executive compensation
• Develop talent review process steps and timeline for implementation

5. IMPLEMENT
• Conduct talent reviews (e.g., 180°/360° assessments)
• Analyze talent reviews and link findings to criteria/competency models
• Facilitate the process by using an electronic “talent skills inventory”
• Communicate succession plans and ensure internal and external

transparency
• Educate/train decision makers

6. TRACK AND MEASURE
• Develop metrics to measure success of the new program. Metrics may

include but are not limited to:
– Quality/readiness of potential leaders
– Number of vacancies
– Success rate of new executives
– Executive assessment of new plan
– Identification of potential leaders
– Response and completion rate of plans
– Ratings from employee satisfaction surveys

• Track success and make enhancements as required

Source: Correspondence with Ellie Maggio, CEO and Managing Director, EMEND Management,
June 2011.

QUESTIONS
1. What steps might you include or remove from this process?
2. What additional techniques might be used to assess talent?
3. How would this process apply to non-executive succession planning?

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194 NELStrategic Human Resources Planning

// REFERENCES
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k _w� `c� qsnnpcqqcb� dpmk � rfc� [email protected] � _l b-mp� cAf_nrcp&q’,� Lcjqml � Cbsa_rgml � pcqcpt cq� rfc� pgefr� rm� pck mt c� _bbgrgml _j� aml rcl r� _r� _l w� rgk c� gd� qs`qcoscl r� pgefrq� pcqrpgargml q� pcosgpc� gr,

195CHAPTER 7 Succession Management NEL

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32. McLaughlin, B., and C. Mott. 2010. “Leadership Brand Equity: HR Leaders’
Role in Driving Economic Value.” Strategic HR Review, Vol. 9, No. 4): 13–19.

33. Joinson. 1998.
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36. Yancey, G.B. 2001. “Succession Planning Creates Quality Leadership.” Credit

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ence Board, Report No. 1158-96-RR. New York: Conference Board Inc., 89.
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k _w� `c� qsnnpcqqcb� dpmk � rfc� [email protected] � _l b-mp� cAf_nrcp&q’,� Lcjqml � Cbsa_rgml � pcqcpt cq� rfc� pgefr� rm� pck mt c� _bbgrgml _j� aml rcl r� _r� _l w� rgk c� gd� qs`qcoscl r� pgefrq� pcqrpgargml q� pcosgpc� gr,

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42. Church, E. 1998. “New-Style CEOs Follow Zig-Zag Path.” The Globe and
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53. For a fuller discussion of these methods, see Saks, Alan M., and Robert R.
Haccoun. 2010. Performance Management Through Training and Development
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54. Haynes, R.K., and R. Ghosh. 2008. “Mentoring and Succession Manage-
ment: An Evaluative Approach to the Strategic Collaboration Model.”
Review of Business, Vol. 28, No. 2 (Winter 2008): 3–7.

55. Byham. 2002.
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HR Reporter (January 27): 13.
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Research Highlights. Toronto: Hewitt Associates.
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of Business Strategy, 31.2: 43–45.
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62. Pitts, G. 2005. “Need a Leader: Just Look for a GE Graduate.” The Globe and
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k _w� `c� qsnnpcqqcb� dpmk � rfc� [email protected] � _l b-mp� cAf_nrcp&q’,� Lcjqml � Cbsa_rgml � pcqcpt cq� rfc� pgefr� rm� pck mt c� _bbgrgml _j� aml rcl r� _r� _l w� rgk c� gd� qs`qcoscl r� pgefrq� pcqrpgargml q� pcosgpc� gr,

197CHAPTER 7 Succession Management NEL

63. Ito, J., and C.M. Brotheridge. 2005. “Does Supporting Employees’ Career
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Management, Vol. 44, No. 1 (Spring): 5–19.

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HR Trends and Metrics, 4th (ed.). p. 83.

65. Bernthal and Wellins. 2006.
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tice Succession Management.” Human Resources (October 14): 17–18.
67. Anonymous. 2010. “2010 Benchmarks: Key Measures to Monitor.” HR

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68. Hewitt Associates Inc. 2005.
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Vol. 38, No. 4: 109–114.
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k _w� `c� qsnnpcqqcb� dpmk � rfc� [email protected] � _l b-mp� cAf_nrcp&q’,� Lcjqml � Cbsa_rgml � pcqcpt cq� rfc� pgefr� rm� pck mt c� _bbgrgml _j� aml rcl r� _r� _l w� rgk c� gd� qs`qcoscl r� pgefrq� pcqrpgargml q� pcosgpc� gr,

NEL

CHAPTER

8

CHAPTER LEARNING OUTCOMES
AFTER READING THIS CHAPTER, YOU SHOULD BE ABLE TO:

• Describe the benefits of information technology (IT) solutions for human
resource planning (HRP).

• Explain how different IT solutions can be leveraged to improve HR planning.
• Identify specific IT applications for HR planning.
• Understand what is meant by Big Data, and it implications for HRM.
• Differentiate between HR metrics and HR analytics.
• Understand how to use HR metrics and HR analytics to help solve business

challenges.

INFORMATION TECHNOLOGY
FOR HR PLANNING

Portions of this chapter were adapted from a chapter
written by Victor Y. Haines III.

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NEL 199CHAPTER 8 Information Technology for HR Planning

// IT AND HRM
The HR department has always been the custodian of employee information. All forms
that are completed by employees giving information about their education, training,
and job experience are stored as data. These data can be used to locate employees for
promotions or transfers, and help managers plan for labour shortages or surpluses.
Obviously, using technology to mine data is faster, cheaper, and more effective than any
paper-based system. According to industry analysts, “HR without technology is becoming
an unthinkable proposition.”2 The use of information technology (IT) for HRM has
increased at a fast pace over the last couple of decades. As a result, HR professionals have
been able to handle a greater workload and achieve operational efficiency. Compared
to paper-based systems, IT provides better data storage, information retrieval, and tools
for analysis—capabilities that help alleviate the burden of transactional activities. This
allows more time and resources to be dedicated to the more strategic roles of business
partner and change agent.3 Workforce analysis capabilities and related dashboards and
scorecards, for instance, help human resources managers collect and interpret data to
measure the success of their efforts (a topic more thoroughly covered in Chapter 14).4

Within HR, some basic requirements are now being met with IT. Employee benefits
and payroll management are typically automated in one way or another. These are basic

Some observers are skeptical that software products by them-
selves will aid a company’s human resources planning efforts.
But as organizations seek to expand their talent management
programs to include mid-level leaders and not just top execu-
tives, computerized systems with databases are crucial, says
Jim Holincheck, an analyst at the research firm Gartner.

Succession-planning software typically allows com-
panies to do things such as assess the risk that various
leaders may leave the company, list possible replacements
for managers, and document the strengths and credentials
of up-and-coming employees. Besides managing succes-
sion and career development plans for more employees,
software products in this field have other benefits, advo-
cates say. These include more-up-to-date information than
paper-based plans done once a year and an improved
ability to search for candidates from within a company.

Auto parts and services chain Pep Boys is convinced
it made a sound investment when it began using software
from SuccessFactors about a year ago, says Liviu Dedes,
the firm’s director for training and organizational develop-
ment. The software was part of a broader succession-man-
agement overhaul, which included a set of 84 round-table
discussions throughout the country on employees’ poten-
tial. According to Dedes, SuccessFactors’ software helped

the company overcome problems it discovered when it
reorganized its business in 2004. The chain, with some
20 000 employees and nearly 600 stores throughout the
United States and in Puerto Rico, wanted to double the
number of area directors to 84 in a period of two months. It
was a “very painful” event, thanks to internal and external
talent pools that were “shallow,” Dedes recalls. For one
thing, he says, Pep Boys’ paper-based system made it
hard to notice quality candidates even in the neighbouring
areas. The company also had inconsistent measures of
people’s potential. SuccessFactors’ software, which Pep
Boys accesses over the web, has helped the company
standardize its employee reviews around a set of compe-
tencies and also made it much easier to see the aspirations
and abilities of some 2000 managers throughout the com-
pany, Dedes says. Far from being a bust, human resources
planning software served as a catalyst for the company to
reflect on and improve its approach to succession manage-
ment, Dedes says: “It was a great opportunity to rethink
ourselves and revise the process we were using.”1

Source: Adapted from Frauenheim, E. 2006. “Software Products Aim
to Streamline Succession Planning,” Workforce Management Online,

www.workforce.com, January 2006, MediaTec. All rights reserved.
Used by permission.

SOFTWARE FOR HR PLANNING

Information
technology
The hardware and
software, including
networking and com-
munication technologies
involved in storing,
retrieving, and transmit-
ting information

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Strategic Human Resources Planning NEL200

transactional activities that have a long history of IT use. Such transactional activities
can also be outsourced to an outside company. More strategic and analytic operations,
however, are only just starting to benefit fully from the capabilities of automation. In
the area of employee recruitment, for instance, the use of web-based job sites, portals,
and kiosks to attract job applicants is increasing. In the area of performance manage-
ment, several software solutions are now available to streamline the multisource (or 360°)
feedback process, and the setting and monitoring of employee performance goals. Using
IT to update and track employee skills inventories and succession management plans
ensures that the data is accurate and available to decision makers when needed. These
more strategic and analytic operations are rarely outsourced. This would explain why, as
HR outsourcing continues to grow, most organizations resort to selective outsourcing.

// NEW SERVICE DELIVERY MODELS
Gaining access to data in a timely manner is a constant challenge. The good news is that
computer capacity is increasing at a steady pace; computers have doubled in capacity
every 24 months since 1970, and there is no reason to expect a slowdown in the near
future. HR is leveraging this computer capacity to improve service delivery and, by
doing so, is transforming itself.5

WEB-BASED HR
Web-based HR allows service delivery that pushes employees and managers into making
transactions (see HR Planning Today 8.1 about how mobile apps are helping to con-
nect employers and employees). Self-service is an important web-based service delivery

HR PLANNING TODAY 8.1

APPS FOR HR

Increasing usage of mobile technology has created an
“apps” culture for some organizations, with industry
sources predicting a doubling of usage among HR pro-
fessionals. In some instances HR departments are offering
apps for HR, which include obtaining and sharing legal
information and benefits. While recruiting heads the list
of HR mobile apps, experts predict that tracking time and
attendance and payroll will dominate over the next years.
Some new apps that are becoming popular include

• People search applications: This mobile app allows
recruiters to mine social media to pull information
from Twitter, Facebook etc. about candidates.

• Benefits administration: This app allows
employees to request vacation time, track their
use of benefits, and submit claims.

• Talent management: The app allows managers
and employees to view current skills, job histo-
ries, and succession plans as well as get data on
open positions, head counts, turnover, and other
HR planning metrics.

Source: Anonymous, “Growing Use of Apps Expanding Operations of HR Professionals,” HR Focus, Vol. 87, No. 11 (November 2010): pp. 4–5;
B. Roberts, “Mobile Workforce Management?” HR Magazine, Vol. 56, No. 3: pp. 67–30.

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NEL 201CHAPTER 8 Information Technology for HR Planning

model. Another is web-based HR service solutions through online access to information,
resulting in quicker responses from experts. Recruiting can now contain basic computer-
based screening tests to reduce the applicant pool. Hence, rather than outsource, HR
may consolidate its services into an internal HR service centre and operate the centre
with its own HR practitioners.

ENTERPRISE PORTALS
Enterprise portals are one of many IT tools that allow efficient access to relevant
content and applications. HR portals are sophisticated websites that are designed to
communicate a range of human resources information and a variety of organizational
resources. They provide a single site for employees to access HR services. They are, in a
sense, HR’s front door6 as they offer a web-based access point to all information sources,
tools, and systems needed to consume HR services effectively. Employees can access the
portal to share information and collaborate more effectively with customers, partners,
and suppliers using a secure infrastructure. The portal might also allow employees to
sign up for direct deposit or view their time cards. Employees may also gain access to
a knowledge repository and e-HR functions.

SELF-SERVICE
Self-service is based on the principle that data is most effectively captured at source.
Self-service allows employees and managers to communicate with and affect data-
bases. For example, employees might input or edit personal information such as
their addresses, emergency contacts, or self-evaluations. Employees and managers
might also be authorized to apply for travel reimbursement and enroll for benefits
or training classes. In some organizations, employees can use self-service to view
job openings within the company, create application materials, apply for a position,
and check the status of pending applications. Employees might also use self-service
applications to model retirement options or enroll in benefits programs. Managers
may use self-service to access authorized information about the employees they
supervise. They may also use self-service to complete a requisition to fill an open
position. Managers might further use the system to compile employee absenteeism
and turnover data, to forecast HR demand, or to manage employees from recruitment
to the annual employee review and compensation planning. This is how employee
self-service (ESS) and manager self-service (MSS) applications are changing service
delivery models as HR service consumers no longer need to interact directly with
HR service providers.

// DIFFERENT SOLUTIONS FOR DIFFERENT NEEDS
IT can be leveraged to better manage several activities involved in HR planning. For
instance, available information on employees’ participation in training, their competen-
cies, and their performance levels may help determine the most competent employee
for a position. Easy access to data may also help management identify areas where avail-
able talent is lacking for adequate succession. Moreover, technology can be leveraged

Employees can edit and input data
on their personnel files.

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Enterprise portals
Knowledge communities
that allow employees
from a single or multiple
companies to access
and benefit from spe-
cialized knowledge
associated with tasks

Self-service
A technology platform
that enables employees
and managers to
access and modify their
data via a web browser
from a desktop or cen-
tralized kiosk

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Strategic Human Resources Planning NEL202

to gauge client satisfaction with the service levels provided by the HRM department,
and electronic surveys are increasingly used to conduct climate or engagement surveys.
As a result, IT can support the different steps of the strategic HR planning process.

There is an amazing diversity of software solutions for HRM and HR planning.
Organizations may favour a comprehensive human resource information system
(HRIS) or a specialty product focused on a single area, such as applicant tracking.
Within these two broad categories, the marketplace offers a range from low-cost, to
mid-market, to costly high-end systems. HR Planning Notebook 8.1 discusses the
stages of adoption of HR technology in organizations. In this section, we review these
options, and also enterprise solutions such as those offered by SAP, BambooHR,
Kronos, and APS.

HRIS
The human resources information system (H RIS) offers an integral solution for the
HR department. It includes the software, hardware, support functions, and system
policies and procedures used to gather, store, and report human resources data. The
system collects, stores, maintains data, and retrieves information about employees
and their jobs.

The HRIS provides access to a large database through a variety of modules that
automate diverse functions. As such, the HRIS is an integrated solution that includes
several subsystems or modules such as recruitment and selection, time and attendance
management, payroll, training and development, pension administration, and so on.
The HRIS thereby covers most of the important subsystems of HRM. It is the primary
transaction processor, editor, record keeper, and functional application system that lies
at the heart of most computerized HR management work.

HR PLANNING NOTEBOOK 8.1

STAGES OF HR TECHNOLOGY ADOPTION

Organizations seem to go through various stages as they
decide to use technology to help manage the workforce.
These are briefly described:

Stage 1: At this initial phase, companies simply codify
employee data such as name, job, compensation, etc.

Stage 2: The basic data is supplemented by data
pulled from other sources, such as performance rat-
ings and training outcomes.

Stage 3: In this stage, employees are given access to
their data and can update or edit their profiles. They

can also access career trajectories, and indicate their
career preferences.

Stage 4: This is the data mining stage, where orga-
nizations use statistics, such as turnover data by
occupation to predict employee behaviour, and link
it to organizational outcomes.

These talent management systems (and new inte-
grated HRMS systems) input performance history, educa-
tion, job assignments, tests taken (so these systems are
extremely useful understanding what drives performance,
engagement, and other desirable outcomes.

Source: Robb, D. “Sizing up Talent,” HR Magazine, 56, 4, April 2011, 77–79. Retrieved November 8, 2014, from http://www.linkedin.com/today/post/
article/20131028062534-131079-the-datafication-of-human-resources.

Human resources
information system
(HRIS)
A comprehensive
across-the-board soft-
ware system for HRM
that includes subsys-
tems or modules

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Sanjana bindroo

Sanjana bindroo

Sanjana bindroo

NEL 203CHAPTER 8 Information Technology for HR Planning

SPECIALTY PRODUCTS
Numerous specialty products are available that enable the automation of discrete tasks
and responsibilities. They have the ability to address specific needs as they are focused
on a single area of HRM. They thereby offer the advantage of going in-depth into a
particular business activity. Some examples of specialty products include compensa-
tion planning, workforce scheduling, managing training and e-learning, and applicant
tracking. Examples are provided throughout this chapter.

Such specialty products may be easily acquired off-the-shelf by smaller companies
as less costly solutions for addressing specific challenges. They are also likely to interface
with a company’s more comprehensive HRIS or ERP base system.

ENTERPRISE SOLUTIONS
Enterprise resource planning (ERP) solutions are based on software that integrates data
from diverse applications into a common database. They cover the fullest range of orga-
nizational activities and processes, including finance, logistics, production, accounting,
and HRM. ERP computer systems are used by large corporations around the world,
adopted with the aim of achieving substantial cost savings and improved access to “tried
and tested” solutions, new releases, and an opportunity to update procedures and align
them with the so-called “best practices.”

The ERP approach promotes the use of a single, shared relational database for
critical information across the organization. This fosters the enforcement of consistent
processes and procedures throughout the organization and ensures that administrative
units can easily share information and communicate with one another. For HR, the
enterprise-wide solution provides a platform for a better integration of HR and finance
in the management of payroll.7 When HR finds it difficult to obtain budget approval
for investments in an HRIS solution, the enterprise-wide solution offers an opportunity
for automation along with other administrative functions. HR professionals may also
gain credibility as a result of their effective involvement in an ERP implementation.
The ERP approach, however, is often quite costly with a lengthy implementation, as it
involves significant organizational and contextual change.8 HR may get sidelined in the
process of integrating a whole range of functions across the organization. Also, because
ERP systems are built with “generic users” in mind, they may not be well adapted to
the specific practices and requirements of the HR user group in any given company.
This may create tensions regarding the organization’s unique identity.9

// BIG DATA
Big data ultimately refers to the integration of digitized data from all the corporate
functions, including marketing, operations, finance, and HR. It even extends to cus-
tomer information such as customer satisfaction, buying habits, and preferences, as well
as information from social media sources such as Facebook, LinkedIn, and more. Big
data may comprise large, unstructured and unrelated data sets that can be difficult to
analyze.10 Big data is commonly measured in petabytes or larger measures, where one
petabyte is the equivalent of 1,000 terabytes. And Big data is getting bigger all the time;
some suggest that the world’s available data is doubling every two years.11

Specialty products
Software solutions for
specific specialized
applications that may or
may not interface with
the main database

Enterprise resource
planning (ERP)
Commercial software
systems that automate
and integrate many or
most of a firm’s busi-
ness processes

Relational database
A database that can
share information
across multiple tables
or files, which allows
the same information
to exist in multiple files
simultaneously

Big data
The integration of
digitized data from
multiple sources and
in multiple formats,
including structured
and unstructured data

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Sanjana bindroo

Sanjana bindroo

Sanjana bindroo

Sanjana bindroo

Strategic Human Resources Planning NEL204

How big is Big data? Recent estimates show that Walmart collects roughly 2.5 petabytes
of customer data every hour, and the expectation is that as the ability to collect different
types of data, store data, and use it to develop customer insights grows, so too will the
amount of data.12

TYPES OF BIG DATA
Big data is based on many different forms, which can be classified into two basic
categories:

1. Structured data. These are the kinds of data with which businesses are most
familiar. Structured data are essentially any form of data that can be orga-
nized into columns and rows. When HR practitioners enter employee data
into the HRIS system, or when finance employees enter organizational
financial data, they usually go into a spreadsheet or database that is orga-
nized into columns and rows. Other types of structured data include sensor
data (e.g., from swipe cards or from monitoring movement).

2. Unstructured data. These forms of data include the various kinds of files you
might have on your computer. Text documents, email or text messages,
audio, presentations, geotags, images, or videos are all unstructured data
because they do not conform to a pre-established structure. Unstructured
data may be searchable, but can be difficult to include with other types of
data for analysis.

These two basic types of data can include data that are produced internally, or that
originate outside the organization. External data can originate from suppliers, customers,
or social media sources, and are becoming increasingly useful in Big data applications, as
organizations try to understand how their strategy affects and is affected by customers,
competitors, and their supply network.

Big data represents the integration and analysis of many different types of data from a wide variety of data
sources.

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Sanjana bindroo

NEL 205CHAPTER 8 Information Technology for HR Planning

THE FIVE PILLARS OF BIG DATA
When attempting to assess an organization’s readiness for Big data, the five pillars
of Big data give some indication of the resources required to extract value from the
investment required to collect, store, and analyze Big data. These five pillars refer to
the attributes of volume, velocity, variety, veracity, and value.13 Let’s take a closer look
at each of these attributes:

1. Volume. As we have already discussed, the volume of data that organizations
can collect today is staggering. As people’s choices and preferences become
issues of public record through social media, and as the Internet of things
proliferates, making the usage of many common everyday items measur-
able, the volume of data available for capture is rapidly expanding.14 Cisco
estimates that the number of networked devices (including things such as
televisions, thermostats, security cameras etc.) will increase from 17 billion
in 2016 to 27 billion by 2021.15 The first resource requirement for organiza-
tions considering trying to make use of Big data is having the capacity to
store the potentially overwhelming volume of data.

2. Velocity. This refers to the requirement to be able to transfer large amounts
of data in a reasonable period of time.16 It might be possible to warehouse
large amounts of video data, but if they cannot be accessed and searched
in a reasonable period of time, it becomes increasingly difficult to integrate
those data into any kind of analysis or to combine them with other data in a
meaningful manner.

3. Variety. Big data can come in many formats, as suggested by the possible
types of unstructured data. Organizations must have the ability to deal with
a wide variety of data types to make the most use of Big data.

4. Veracity. As the variety and volume of data increase, the old saying garbage
in, garbage out becomes even more relevant. When considering the way that
unstructured data might be error prone (e.g., the metadata might be incor-
rect for photo files, or object recognition from video files might be error
prone), and the reduced ability to verify the accuracy of external data, the
potential for error in the data leading to incorrect inferences from the data
becomes greater, and the ability to detect and reduce those errors becomes
more difficult.

5. Value. With the ability to capture data from so many sources, how do
organizations determine what data is of value and what to ignore? More
valuable data can be given greater attention so that it is gathered with less
error. This is one area where artificial intelligence can help to determine
how data can be arranged and analyzed, and consequently what data is
more useful.

The five pillars demonstrate that harnessing the power of Big data presents signifi-
cant challenges and a large investment of knowledge, skills, and technological capital.
Given the large increase in the uncertainty of the accuracy of unstructured and external
data as well as the complexities of making associations among these disparate forms of
data, the use of artificial intelligence to manage these tasks has become an important
aspect of using Big data.

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Sanjana bindroo

Sanjana bindroo

Strategic Human Resources Planning NEL206

ARTIFICIAL INTELLIGENCE AND MACHINE LEARNING
Artificial intelligence in general refers to the ability of a piece of software to learn. This
learning can take several forms that range from a reward-based method to unsupervised,
predictive learning.17 Reinforcement learning, like the kind used on people and ani-
mals, is also used with machines. By giving the software a clear objective, but without
the system developers knowing how to achieve that objective, the machine attempts
millions of self-directed simulations until it achieves an appropriate outcome.18 This is
how IBM taught Deep Blue, its chess computer, to beat world champion chess masters.
As artificial intelligence matures, it will become increasingly efficient at helping to sift
through Big data for relevant insights. However, Big data and artificial intelligence pose
problems for organizations beyond the challenges of developing the technology and
providing the resources to enable it. The issues around Big data quickly move from how
machines learn to how to manage the security of the data, the privacy of individuals,
and the ethics around decisions made by machines.

Data security is an ever-growing concern, particularly
as the volume of data stored increases. The Equifax data
breach in 2017 demonstrated that individuals are not
completely in control of their own data, and companies
with which we have no direct contact can be the source
of leaking highly personal and confidential data such as
social insurance numbers, addresses, and dates of birth.
Individual privacy goes beyond data security. As Big data
becomes more capable of predicting consumer preferences
and employee behaviours, organizations can learn, and
potentially share aspects about our lives that we prefer to
keep private (see HR Planning Today 8.2 about how one
father learned that his daughter was pregnant). The ethics
issues surrounding Big data pose many questions that will
need to be answered before organizations can fully grasp
the risks involved in using artificial intelligence to aid in
decision making.

ETHICS AND BIG DATA
A strength of artificial intelligence (AI) is that we can teach it how to make decisions
using historical examples, and then let it use that guided learning as a launch point for
experimenting with new ways of applying what it has been taught. This is particularly
useful for helping humans to make sense of large sets of data that have many pos-
sible combinations of variables that are coded in multiple formats. However, artificial
intelligence lacks transparency around the decision rules that it develops. It cannot
explain the decisions that it arrives at, which is the point at which ethical issues around
the use of AI begin to surface. Who becomes liable for the decisions and predictions
that are made using AI?19 Can we hold the company that developed the software
responsible? What happens when decisions are made using data that have errors, and
that lead to costly mistakes? For HRIS vendors, the software either works as expected
or has a flaw that the vendor is responsible for correcting. But when AI makes a
costly decision or analysis, what are the conditions under which this can be called a
bug? And what happens if the software stops working? Imagine that the department

Artificial intelligence
A software-based
ability to demonstrate
learning and decision
making

Big data and artificial intelligence present new questions for HR
professionals around data security, individual privacy issues, and
ethics.

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NEL 207CHAPTER 8 Information Technology for HR Planning

of HR analysts has been replaced by software that suddenly fails. What operational
risk does the organization face in such a circumstance? Questions like these help to
demonstrate the kinds of risks and issues that organizations face when considering
implementing Big data and AI. HR Planning Today 8.3 further explores the potential
limitations of Big data to transform the HR function in the near future. Until many
of these questions can be answered, the primary tools used by the HR function will
be the HRIS system and its associated databases, spreadsheets such as Excel, and sta-
tistical analysis packages. These tools may be used in isolation or combined to form
a workforce metrics dashboard.

// HR METRICS AND WORKFORCE ANALYTICS
HR metrics and workforce analytics applications address the challenge of getting
business intelligence for strategic decision making. As a subset of business intelligence,
HR metrics use statistical modelling and software to gather information about employees
and work in order to optimize the use of human resources in the organization. The best
applications provide on-demand access to workforce performance through dashboards

HR PLANNING TODAY 8.2

BIG DATA AND HR SEGMENTATION

Have you ever shopped on a website like Amazon and
noticed that the site makes several suggestions for similar
or complementary products to the one you are initially
interested in purchasing? Organizations are constantly
trying to develop a better understanding of their customers’
desires and purchasing behaviours and, thanks to Big data,
they are finally getting somewhere. Target made big news
in 2012 when it mailed coupons for products that would
be of interest to pregnant and new mothers to a teenage
girl. The girl’s father was outraged by the targeted mailer
until he learned that his daughter actually was pregnant.

How did Target know she was pregnant before
her father did? Target collected data about customers
based on their past purchases using their credit card,
email address, or other form of unique identifier. Target
set a specific business challenge of trying to appeal to
pregnant women who were relatively early on in their
pregnancy. Target believed that their strategy of providing
a single stop for all shopping needs was particularly

appealing to new parents, and that if they could make
women aware of Target’s value proposition early in preg-
nancy, it might help to solidify new shopping habits.
Target’s research revealed that pregnant women tended
to buy a set of 25 particular items, and so when shop-
pers bought several items from among these 25, Target
would send them coupons that would be of interest to
pregnant women.

The case that made Target news is just a single
example of the kinds of efforts that firms are making to
segment customers by their preferences and then try
to determine how to predict the interests and needs of
those specific segments. HR can use Big data in similar
ways; for example, HR can segment its employees by their
preferences, and learn how to predict turnover for each
of these employee groups. Or HR could use Big data to
develop a better understanding of how employees should
be combined from these groups in order to predict higher
team performance.

Adapted from Kashmir Hill, 2012, “How Target Figured Out a Teen Girl Was Pregnant Before Her Father Did,” Forbes, https://www.forbes.com/sites/
kashmirhill/2012/02/16/how-target-figured-out-a-teen-girl-was-pregnant-before-her-father-did/#1802e0966668, retrieved March 16, 2018; C. Duhig,
February 16, 2012, “How Companies Learn Your Secrets,” New York Times Magazine, http://www.nytimes.com/2012/02/19/magazine/shopping-habits.
html?pagewanted=1&_r=1 , retrieved March 16, 2018.

Business intelligence
The applications and
technologies for gath-
ering, storing, analyzing,
and providing access
to data to help users
make better business
decisions

HR metrics
Summary measures
of HR outcomes that
are relevant to the
performance of the HR
function. Example met-
rics include the cost of
recruitment, time-
to-hire, and turnover
rate

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Sanjana bindroo

Strategic Human Resources Planning NEL208

HR PLANNING TODAY 8.3

THE LIMITATIONS OF BIG DATA ON HRM

Google began a Big data HR project in 2008 called Project
Oxygen. This project sought to discover the attributes
of a good manager at Google by looking at past perfor-
mance reviews, surveys, nominations for best manager
awards, and other sources of data that could be used to
uncover the habits, behaviours, or attributes of a great
manager. After years of study, Google determined eight
habits of great managers, but the results almost seemed
anti-climactic. Each of the eight habits was uncovered
some time ago, and so the results of the study appeared
more confirmatory and sensible than ground breaking.
Some researchers suggest that Big data and AI have
the potential to have a large impact on aspects of the

business that deal with less sensitive and private data
and where there are millions of data points, such as mil-
lions of customer transactions or inventory transactions.
But the scope for Big data and AI to have a large impact
on the business through HR is limited by the degree to
which private employee data can be used and shared,
and by the fact that even very large organizations count
their employees in the tens of thousands rather than mil-
lions. Big data will certainly lead to new ways in which
HR connects with other functional areas of the business
to solve organizational challenges. What is uncertain is
the extent to which Big data and AI will transform the
HR function.

Adapted from: Bryant, A. (March 12, 2011), Google’s Quest to Build a Better Boss. New York Times, http://www.nytimes.com/2011/03/13/
business/13hire.html?smid=pl-share, retrieved March 6, 2018; Cappelli, P. (June 2, 2017), “There’s No Such Thing as Big Data in HR,” HBR.org

that place information such as turnover rate, comparisons of pay rates between groups,
and other summary information at the manager’s fingertips. The purpose of HR dash-
boards is to organize key pieces of HR information and present data in ways that are
simple to understand.

The role of workforce analytics can be placed into one or more of three categories:
descriptive analytics, which describe what happened; predictive analytics, which make
inferences based on existing data to describe what could happen; and prescriptive ana-
lytics, which describe what should happen.20 While workforce analytics span all three
of these domains, HR metrics function largely within the first domain of descriptive
analytics.

Workforce analytics is still in its infancy. To date, there are very few studies on HR
analytics, and it is estimated that roughly 15 percent of firms are using HR analytics (see
HR Planning Notebook 8.2 for more discussion on the current state of HR analytics
in organizations).21 While this low number may seem surprising given today’s focus
on measuring the impact of HR practices, the reason for this surprise may be attribut-
able to the ambiguity in what workforce analytics actually is, and how it differs from
HR metrics. The primary distinction between these two aspects of measurement is that
HR metrics generally refer to a narrower set of measures that tend to be restricted to
measuring HR outcomes such as the cost of recruitment from various sources, the time
taken for selection, or turnover rates by department, whereas HR analytics attempt to
place HR in the broader context of the organization and its other functions, systems,
or strategy (see HR Planning Today 8.4 for an example of the use of HR analytics to
connect HR policies with organization strategy).22 HR analytics has been defined as
an “HR practice enabled by information technology that uses descriptive, visual, and
statistical analyses of data related to HR processes, human capital, organizational per-
formance, and external economic benchmarks to establish business impact and enable

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NEL 209CHAPTER 8 Information Technology for HR Planning

HR PLANNING NOTEBOOK 8.2

WORKFORCE ANALYTICS

Some uses of workforce analytics include
• predicting the probable success of a candidate;

• identifying and quantifying the physical risks to
employees;

• identifying workforce characteristics that contribute
to fraud;

• measuring employee engagement and predicting
turnover;

• identifying obsolete departments and or
positions.

Despite the power of data to inform decisions, only
about 10 to 15 percent of companies use workforce ana-
lytics, although two-thirds indicated that they intended to
do so in the next two years. This “datafication” of HR is a
major business trend.

Sources: Margaret Rouse, “Workforce Analytics,” http://searchfinancialapplications.techtarget.com/definition/workforce-analytics, retrieved
November 4, 2014; Visier, “How Is Talent Driving Business Success?” http://www.visier.com/lp/harvard-business-review-hr-joins-the-analytics-
revolution, retrieved March 6, 2018; Giller, J. “HR Analytics,” HRPATODAY, September 2014, pp. 31–32.

HR PLANNING TODAY 8.4

HR ANALYTICS AND STRATEGY AT LOWES

In 2007, Lowes began a project to understand how HR
initiatives were impacting bottom-line performance. The
project was initiated by the frustration over the fact that
human capital, the single largest operating expense, was
also one of the least measured. Lowes partnered with a
third-party organization to help with the development and
analysis of the project. The scope of the project included
human capital metrics, operating metrics, marketing infor-
mation, customer data, and financial performance data so
that Lowes could find connections not only within the HR
function, but also how each of these areas of the business
combine to affect broad business problems.

The project team included experts from the HR depart-
ment, the operations department, and statistical analysts
from the third-party organization. When projects involve
connections between human capital and other aspects of
the firm, it is very important to include HR experts at a high
level in the project. The process of developing a model that
predicts how human capital influences business processes
requires experts with knowledge of theory relating to psy-
chology and sociology, and how these theories are relevant
to and used in the study of organizational behaviour, and

so it is very important to include HR experts in the model
development and interpretation processes. At Lowes the
project unfolded in the following manner:

1. Establishing senior management buy-in. Projects that
attempt to connect human capital with other business
functions and processes require cross-functional sup-
port. They also involve making particular assumptions;
for example, what bottom-line performance metrics
are of particular interest to the firm? What aspects
of customer behaviour are important to strategy? Or,
how does the organization define strategic activity?
The success of HR analytics depends on buy-in and
cooperation from across the firm as well as agree-
ment around the assumptions made about what
activities, behaviours, and measures are important
to the firm.

2. The discovery process. This stage involves two
related process: theorizing what the model should
look like, and understanding what data is available for
use in the project. In the case of Lowes, the business
challenge was trying to develop a model to connect

(Continued )

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Strategic Human Resources Planning NEL210

human capital to bottom-line performance in the firm.
Once the model has been developed, project planners
must ensure that the data is available, and that the
data has been audited for errors. If data collection is
necessary, then this must be undertaken before pro-
ceeding with the project. For example, if the project
team theorizes that employee perceptions of a climate
for customer service is an important driver of profits,
but no measure of customer service climate has been
surveyed, then the team must develop this survey
and capture employee perceptions of service climate.

3. Gaining executive buy-in of the model and the vari-
ables. HR analytics involve assumptions. For example,
employee perceptions of a customer service climate
might lead employees in a work team to demonstrate
more helping behaviours toward customers. In order
for this to be a strategic benefit for the firm, execu-
tives must agree that these helping behaviours are
in line with the firm’s value proposition. If the firm
strategy is to process customers as quickly as pos-
sible, then helping behaviours might actually run
contrary to what executives consider to be strategic
behaviours. Thus, the assumptions made around the
model must be in line with what senior management
believes to be consistent with the firm’s strategy.

4. Communicate results and take action. Once the
results of the analysis are available, management
must have a communication plan in place to interpret
the results for all functions in the organization. HR
analytics generally connect with multiple functions

within the organization, and consequently can have
impact well beyond the HR function. How the results
impact each function differently is a critical aspect of
the interpretation and communication of the results.
Management must also have a plan to communicate
what action will be taken as a result of the analytics
project.

5. Use the results to theorize and improve the model.
As discussed in Chapter 5, action planning involves
constantly moving from analysis to theory. As results
from one analysis become available, it is important to
learn from the process, improve the model, and move
into analysis again. This implies constant change and
learning, as we discuss in Chapter 9.

As a result of their HR analytics initiative, Lowes
learned that engaged employees increase store-level
performance by increasing average sales per customer.
Engaged employees help customers with their purchases
and provide suggestions for completing projects, thereby
increasing the average customer basket size per visit.
Stores with overall higher employee engagement had
significantly higher yearly sales. While prior research
has demonstrated that employee engagement relates to
firm performance, Lowes was able to model the process
through which engagement relates to performance in their
stores. This knowledge can be used to implement HR ini-
tiatives aimed at motivating all employees to perform the
kinds of behaviours that are strategically relevant to store
performance, and to hire job applicants who are more likely
to demonstrate the behaviours of engaged employees.

Adapted from C. Coco, F. Jamison, and H. Black, 2011. “Connecting People Investments and Business Outcomes at Lowe’s: Using Value Linkage
Analytics to Link Employee Engagement to Business Performance,” People and Strategy, 34(2), 28–33.

data-driven decision-making.”23 This definition is more in line with the objectives of
Big data and AI, and so it is not surprising that while many organizations are using HR
metrics, few are at the point of using HR analytics.

MAXIMIZING THE BENEFITS OF HR METRICS

DASHBOARDS

An HR dashboard is simply an aggregation, in electronic format, of useful or relevant
HR metrics or performance indicators. The convenience of a dashboard is that it should
be able to incorporate data from multiple information sources, and that it provides

HR dashboard
An aggregation of
useful or relevant HR
metrics or performance
indicators that provide
a summary snapshot of
performance

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NEL 211CHAPTER 8 Information Technology for HR Planning

real-time summaries of performance. Popular measures for inclusion in dashboards are
ratios of the most recent performance period that captures turnover rate, employee
survey results, time to hire, cost per hire, and hiring rates based on recruitment source.
The kinds of key performance indicators (KPIs) that appear on dashboards include
indicators of operationally important or strategic activities such as product delivery
times, sales targets, or sales growth.24

The purpose of dashboards is to provide managers with a quick understanding of key
performance indicators in their business. Rather than looking through multiple spread-
sheets and conducting hourly, daily, or weekly analyses of the updated data, dashboards
focus managers’ attention on the most recent and up-to-date information. A criticism
of dashboards is that they can focus too much attention on summary measures, and so,
rather than contributing to higher performance, they can distract managers from the
real underlying causes of the measures. Dashboards can also serve very specific uses.
For example, organizations can track the amount of communication between team or
group members to map the flow of communication and transfer of information across
groups.25 As these types of communications data flow on practically a constant basis,
a dashboard visualization of the flow of information can suggest what group members
are more engaged with the team, and uncover informal group hierarchies and processes.

KEY PERFORMANCE INDICATORS

The purpose of an HR dashboard is to acquire a snapshot of system performance
at a given point in time. In order to capture this snapshot, management must give
some thought as to what aspects of performance are the most suitable to monitor.
These performance measures are known as key performance indicators (KPIs). The
KPIs can be used at the individual level to monitor the alignment of individual
performance with functional and organizational objectives, as you will see in an HR
scorecard in Chapter 14, or at the functional level where the purpose is to gauge the
alignment of the overall functional area with the firm’s strategy. The KPIs that are
best to include in an HR dashboard are those that demonstrate the extent to which
the HR function is addressing strategic needs, and are improving service quality
and efficiency.

Sysco is one of the largest food services companies in North America, providing
food products to health care, restaurant, and educational facilities as well as the hos-
pitality industry.26 Using HR metrics, Sysco learned that survey measures of truck
driver quality-of-life scores and consequently organizational turnover were affected by
a transition to a new compensation plan that provided pay incentives to drivers who
made more deliveries with better safety records and lower error rates. These measures
also predicted customer satisfaction, thereby increasing organizational performance.
Three KPIs that could monitor this system leading to performance include truck driver
climate survey measures, customer satisfaction, and driver turnover rates. Changes to
either organizational climate scores or driver turnover rates could signal a coming change
in customer satisfaction, and pre-emptive HR actions could be put in place to prevent
the erosion to customer satisfaction from this source. Thus, a few carefully selected
KPIs can represent much more than simply the performance of the variables that they
measure; they can summarize an entire system or process. That is, a few well selected
KPIs represent the performance of a range of important variables or relationships that
are not directly measured, and changes to the KPIs indicate when changes to other
unmeasured aspects of performance are in order.27

Key performance
indicators (KPIs)
A snapshot measure
of system performance
that demonstrates the
success of strategy
implementation in
terms of cost, quality,
or time

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Strategic Human Resources Planning NEL212

To summarize, HR dashboards are visual aggregations of summary snapshots of
the performance of the HR function, based on HR metrics. The metrics to be included
in a dashboard should provide information about processes that relate to strategically
relevant activities and outcomes of those activities. By doing so, the HR dashboard
provides a real-time glimpse of the extent to which the HR function is successful in
contributing to organizational performance.

// OTHER ASPECTS OF IT FOR HR PLANNING
WORKFORCE MANAGEMENT AND SCHEDULING
The logistics of workforce management and scheduling are often quite complex.
Workforce scheduling and optimization software provides applications for deploying
employees most effectively. In a call centre, for example, the planning process might
involve accurately forecasting call volumes, handle times, and overhead to determine
staffing and scheduling requirements. Once these forecasts are available, the software
application could quickly create schedules that take into account work rules, call volumes,
agent preferences, and training/meeting times. Then managers could make scheduling
adjustments as call volumes and other variables change.

Trade shows are an effective way to learn about new HR technologies.

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NEL 213CHAPTER 8 Information Technology for HR Planning

FORENSIC REPORTING
Forensic reporting can be used to monitor employees, for the good of the organization
and for the benefit of employees. HR departments normally have the responsibility
for compliance with policies. Software can audit employees to ensure they comply
with policies such as safety inspections or overtime payments. Forensics can also
identify at-risk employees. For example, Canadians report experiencing high levels of
stress, and the first signs of burnout may be higher levels of absenteeism, turnover,
or accidents. Grouped together, these factors might offer an early signal of decreases
in productivity. If the stress continues, the organization may face higher workers’
compensation rates, higher recruitment and selection costs, and increases in the
demand for overtime. The need to schedule the remaining workforce will become
increasingly important.28

ENSURING DATA SECURITY
Employers have an obligation to protect employees’ personal records, medical records,
and employment tests. Legislation in Canada requires that personal information used
for an administrative purpose be as accurate, up to date,
and complete as possible. With regard to the collection of
personal information, only that information which relates
directly to a business should be collected and maintained
in the HRIS. There must be a proper balance between
what an individual is expected to divulge and what infor-
mation employment and management decisions require.
This legislation also sets boundaries for the use of personal
information. Such information should be used only for
the purpose for which it was obtained or compiled, or for
a use consistent with that purpose.

Another golden rule is that only authorized persons
should have access to employee data. Some security
features that restrict access include login security, row-
level security (record security), and field-level security
(data field).29 Procedures to further protect data include
the usage of PINs and passwords; the usage of encryp-
tion devices or software when sending sensitive email;
smart cards or tokens; provision of regular, ongoing
education and reinforcement of clearly defined orga-
nizational policies; and turning off systems when they
are not in use.

System security further protects sensitive data. Secure
operating systems and dependable computer programs
are, of course, important. Another key to security is lim-
iting access to computer resources. Company policies,
for instance, can physically limit access to computers to
only those who will not compromise security. This might
involve restricting entrance to a property, a building, or
a room. Organizations need systems to protect corporate data.

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Strategic Human Resources Planning NEL214

// EVALUATING HR TECHNOLOGY
User satisfaction and system usage are important indicators of HRIS success.30 Drawing
from the technology acceptance and user satisfaction streams of research, a study found
that attitudes toward IT are influenced by behavioural beliefs about technology useful-
ness and ease of use.31 These beliefs, in turn, are influenced by information satisfaction
and system satisfaction, which result from information quality and system quality. An
audit that includes the different measures laid out in HR Planning Notebook 8.3 may
provide useful insights into HR technology effectiveness.

CONDUCT A NEEDS ANALYSIS
Needs regarding HR technology are constantly evolving. Nevertheless, writes James G.
Meade, “You are best off if you define those needs, at least in outline form, and plan
for software that will meet the needs as they evolve.”32 A systematic needs analysis will
involve collecting information about the organization (e.g., size, industry demands), its
technical environment (e.g., hardware, operating systems, network environment, data-
base, installed software, telecommunications, possible application service providers), and
the needs of its HR department. With regard to such needs, Meade suggests exploring
areas in which the HR department is not accessing critical information in an accurate

Technology
acceptance
Extent to which users
intend or actually use
technology as a regular
part of their job

HR PLANNING NOTEBOOK 8.3

SAMPLE TECHNOLOGY EFFECTIVENESS ITEMS

• Attitude:
– Using this HR technology is very enjoyable.

• Usefulness:
– Using this HR technology enhances my

effectiveness on the job.
• Information satisfaction:

– I am very satisfied with the information
I receive from this HR technology.

• System satisfaction:
– Overall, my interaction with this HR technology

is very satisfying.
• Information quality:

– This HR technology produces comprehensive
information (completeness).

– The information provided by this HR technology
is well laid out (format).

– There are few errors in the information I obtain
from this HR technology (accuracy).

– The information provided by this HR technology
is always up to date (currency).

• System quality:
– This HR technology operates reliably

(relia