Strategic Human Resources Planning, 8E
by Monica Belcourt and Mark Podolsky
Copyright © 2023 by Tophatmonocle Corp.
For more information contact Tophatmonocle Corp., 151 Bloor Street West, Suite 200,
Toronto, Ontario, M5S 1S4. Or you can visit our Internet site at tophat.com.
All Rights Reserved. No part of this work covered by the copyright herein may be
reproduced, transcribed, or used in any form or by any means—graphic, electronic, or
mechanical, including photocopying, recording, taping, Web distribution, or information
storage and retrieval systems—without the written permission of the publisher.
Every effort has been made to trace ownership of all copyrighted material and to secure
permission from copyright holders. In the event of any question arising as to the use of any
material, we will be pleased to make the necessary corrections in future editions.
Please note: This publication may contain material that has been licensed from a Third
Party and should not be edited without permission from that Third Party.
This material will be identified by the use of citations such as:
•
direct quotations
•
source and/or credit lines
•
notes or footnotes indicating "reprinted by permission of..."
•
parenthetical in-text citations
•
in-text paraphrased material attributed to a third party
If you have questions about Top Hat’s licensing policy, or if you believe an attribution has
been made in error, please email permissions@tophat.com.
Cover Design: Courtney Hellam
Cover Image: uniqdes/Shutterstock.com
Brief Contents
CHAPTER 1: Strategic Management
CHAPTER 2: Aligning HR with Strategy
CHAPTER 3: Environmental Influences on HRM
CHAPTER 4: The HR Forecasting Process
CHAPTER 5: Determining HR Demand
CHAPTER 6: Ascertaining HR Supply
CHAPTER 7: Succession Management
CHAPTER 8: Information Technology for HR Planning
CHAPTER 9: Change Management
CHAPTER 10: Downsizing and Restructuring
CHAPTER 11: Strategic International HRM
CHAPTER 12: Mergers and Acquisitions
CHAPTER 13: Outsourcing
CHAPTER 14: HR Assessment and Analytics
Expanded Contents
Cover and Copyright
Contents
From the Authors
About This Series
About This Course: For Instructors
About This Course: For Students
CHAPTER 1: Strategic Management
Learning Outcomes
Introduction
1.1 A Need for Strategic HRM
1.1.1 Strategy
1.1.2 Why Develop Strategy?
1.2 Strategic Types
1.2.1 Corporate Strategies
1.2.2 Business Strategies
1.3 The Strategic Planning Process
1.3.1 Establish the Mission, Vision, and Values
1.3.2 Develop Objectives
1.3.3 Analyze the External Environment
1.3.4 Identify the Competitive Advantage
1.3.5 Determine the Competitive Position
1.3.6 Implement the Strategy
1.3.7 Evaluate the Performance
1.4 Benefits of Strategy Formulation
1.4.1 Chapter Structure in Relation to Strategy
Summary
Glossary
Discussion Questions
Exercise
References
Credits
CHAPTER 2: Aligning HR with Strategy
Learning Outcomes
Introduction
2.1 Strategic HRM
2.2 Theories of the Strategic Management of Human Resources
2.2.1 Resource-Based View
2.2.2 The Contingency Perspective
2.2.3 Strategic HR Planning: A Continuum of Options
2.3 The Importance of Strategic HR Planning
2.3.1 Employees Are a Strategic Resource
2.3.2 Improved Goal Attainment
2.4 Linking HR Processes to Strategy
2.4.1 Corporate Strategy Leads to HR Strategy
2.4.2 HR Competencies Lead to Business Strategy
2.4.3 Reciprocal Interdependency between HR Strategy and Business Strategy
2.4.4 HR Becomes a Business Partner
2.4.5 Becoming More Strategic
2.4.6 HR Strategy Differentiation
2.5 Characteristics of an Effective HRM Strategy
2.5.1 External Fit
2.5.2 Internal Fit
2.5.3 Agility
2.5.4 Focus on Results
Summary
Glossary
Discussion Questions
Exercises
References
Credits
CHAPTER 3: Environmental Influences on HRM
Learning Outcomes
Introduction
3.1 Environmental Scanning
3.1.1 Sources and Methods
3.2 Methods of Forecasting
3.2.1 Competitive Intelligence
3.3 Challenges in Environmental Scanning
3.3.1 Isolating the Critical From the Insignificant
3.4 Environmental Factors
3.4.1 Economic Climate
3.4.2 Globalization
3.4.3 Political and Legislative Factors
3.4.4 Technology
3.4.5.Demographics
3.4.6 Social and Cultural Factors
3.5 Constituent Groups
3.5.1 The Board of Directors and Senior Executives
3.5.2 Senior Management
3.5.3 Supervisors
3.5.4 Employees
3.5.5 Unions
3.6 Responding to External Factors
3.6.1 A Proactive Approach
Summary
Glossary
Discussion Questions
Exercise
References
Credits
CHAPTER 4: The HR Forecasting Process
Learning Outcomes
Introduction
4.1 What Is HR Forecasting?
4.1.1 The Strategic Importance of HR Forecasting
4.1.2 Reducing HR Costs
4.1.3 Increasing Organizational Flexibility
4.1.4 Ensuring a Close Linkage to the Macro Business Forecasting Process
4.1.5 Ensuring that Organizational Requirements Take Precedence Over Resource
Constraints and Scarcity Issues
4.2 The Role of Job Analysis in Strategic HR Planning
4.2.1 Job Analysis
4.2.2 The Difference Between Job Analysis and Competency Modelling
4.2.3 Job Analysis as the Basis for HR Planning
4.3 The Value of Human Capital to the Firm
4.3.1 Generic Human Capital
4.3.2 Firm-Specific Human Capital
4.3.3 Human Capital Stock and Flows
4.4 Project Management
4.4.1 Project Life Cycle
4.4.2 Project Management Approaches
4.5 Key Human Capital Analyses Conducted by HR Forecasters
4.5.1 Strategic Forecasting
4.6 The Forecasting Process
4.6.1 Forecasting Methods
4.7 Environmental and Organizational Factors Affecting HR Forecasting
4.7.1 HR Forecasting Time Horizons
4.7.2 Reconciling Net HR Requirements
4.7.3 Institute HR Programs and Policies
Summary
Glossary
Discussion Questions
Exercise
References
Credits
CHAPTER 5: Determining HR Demand
Learning Outcomes
Introduction
5.1 Forecasting Demand
5.1.1 The Role of Job Analysis in Forecasting the Demand for Labour
5.1.2 Certainty in Forecasting
5.1.3 Volume and Complexity of Available Data
5.2 Quantitative Methods
5.2.1 Trend/Ratio Analysis
5.2.2 Time Series Models
5.2.3 Correlation
5.2.4 Regression Analysis
5.2.5 Structural Equation Modelling
5.2.6 Machine Learning and Artificial Intelligence (AI)
5.3 Qualitative Forecasting Techniques
5.3.1 Management Survey
5.3.2 Scenario Planning
5.3.3 Delphi Technique
5.3.4 Nominal Group Technique
5.3.5 HR Budgets/Staffing Tables
5.4 Combining Quantitative and Qualitative Methods
5.4.1 Simulation
Summary
Glossary
Discussion Questions
Exercise
References
Credits
CHAPTER 6: Ascertaining HR Supply
Learning Outcomes
Introduction
6.1 Importance of Job Analysis in Forecasting Labour Supply
6.1.1 Internal and External Human Capital
6.1.2 Segmenting the Internal Supply of Human Capital
6.2 HR Supply Programs
6.2.1 The Role of Employers in Influencing Supply
6.2.2 Other Labour Pools
6.2.3 Influence of Government Programs
6.2.4 HR Retention Programs
6.3 Methods for Modelling the Supply of Human Capital
6.3.1 Skills and Management Inventories
6.3.2 Markov Models
6.3.3 Linear Programming and Simulation
6.3.4 Movement Analysis
6.3.5 Vacancy Model
6.4 Substitution and Other Gap Strategies
6.4.1 Managing the Bullwhip Effect
Summary
Glossary
Discussion Questions
Exercise
References
Credits
CHAPTER 7: Succession Management
Learning Outcomes
Introduction
7.1 Importance of Succession Management
7.2 Evolution of Succession Management
7.2.1 Broader Focus
7.2.2 Time Horizon
7.2.3 Talent Pools
7.2.4 Rating System
7.3 Succession Management Process
7.3.1 Align Succession Management Plans with Strategy
7.4 Identify the Skills and Competencies Needed to Meet Strategic Objectives
7.4.1 Job-Based Approach
7.4.2 Competency-Based Approach
7.5 Identify High-Potential Employees
7.5.1 Approaches to Identifying Managerial Talent
7.6 Provide Developmental Opportunities and Experiences
7.6.1 Management Development Methods
7.7 Monitor Succession Management
7.8 Employee and HR Role in Succession Management
7.8.1 The Employee Role
7.8.2 The HR Role: Managing Talent
Summary
Glossary
Discussion Questions
Exercises
References
Credits
CHAPTER 8: Information Technology for HR Planning
Learning Outcomes
Introduction
8.1 The Impact of Technology on the HR Function
8.1.1 Recruitment and Selection
8.1.2 Training
8.1.3 Performance Appraisal
8.1.4 Employee Self-Service
8.2 New Service Delivery Models
8.2.1 Web-Based HR
8.2.2 Enterprise Portals
8.2.3 Self-Service
8.2.4 Different Solutions for Different Needs
8.3 Big Data
8.3.1 Types of Big Data
8.3.2 The Five Pillars of Big Data
8.3.3 Artificial Intelligence and Machine Learning
8.3.4 Ethics and Big Data
8.4 HR Metrics and HR Analytics
8.4.1 Maximizing the Benefits of HR Metrics
8.5 Other Aspects of IT for HR Planning
8.5.1 Workforce Management and Scheduling
8.5.2 Forensic Reporting
8.5.3 Ensuring Data Security
8.5.4 Evaluating HR Technology
Summary
Glossary
Discussion Questions
Exercises
References
Credits
CHAPTER 9: Change Management
Learning Outcomes
Introduction
9.1 Why Is Organizational Change Important?
9.1.1 The Increasing Pace of Change
9.1.2 Societal, Industrial, and Organizational Levels of Change
9.1.3 Organizations as Open Systems
9.2 The Generic Model of Change
9.2.1 Recognizing the Need for Change and Starting the Process
9.2.2 Diagnosing What Needs to Be Changed
9.2.3 Planning and Preparing for Change
9.2.4 Implementing the Change
9.2.5 Sustaining the Change
9.3 The Planned Model of Change
9.3.1 Field Theory
9.3.2 Group Dynamics
9.3.3 Action Research
9.3.4 Three-Step Model
9.3.5 Development of the Planned Change Approach
9.4 Emergent Change
9.4.1 Chaos Theory and Emergent Change
9.5 Organizational Learning
9.5.1 Personal Mastery
9.5.2 Mental Models
9.5.3 Shared Vision
9.5.4 Team Learning
9.5.5 Systems Thinking
9.6 Strategic HR and Change
9.6.1 Clarifying and Communicating Values
9.6.2 Training, Education, and Organizational Learning
Summary
Glossary
Discussion Questions
Exercises
References
Credits
CHAPTER 10: Downsizing and Restructuring
Learning Outcomes
Introduction
10.1 The Downsizing Phenomenon
10.2 Defining Downsizing and Restructuring
10.2.1 Types of Downsizing Strategies
10.2.2 Types of Restructuring Strategies
10.3 Why Do Organizations Downsize?
10.3.1 Downsizing and the Sears Closure
10.3.2 Alternatives to Downsizing
10.4 The Future of Work
10.4.1 Artificial Intelligence and Job Loss
10.4.2 COVID-19 and the Intelligence Revolution
10.4.3 The Amazon Effect
10.5 The Downsizing Decision
10.5.1 Inplacement and Outplacement Issues
10.5.2 Some Ethical Considerations
10.5.3 Planning for Downsizing
10.5.4 Adjusting to Job Loss
10.6 The “Survivors” of Downsizing
10.6.1 Impact on the "Survivors"
10.6.2 Survivor Reactions
10.6.3 Impact on the “Downsizers”
10.7 Financial Performance and Downsizing
10.8 Downsizing Consequences and Strategies
10.8.1 Consequences of Downsizing
10.8.2 Downsizing Strategies
10.8.3 HR Role in Downsizing and Restructuring
10.9 Labour Relations Issues
Summary
Glossary
Discussion Questions
Exercises
References
Credits
CHAPTER 11: Strategic International HRM
Learning Outcomes
Introduction
11.1 Key Challenges within an International Context
11.1.1 Workforce Diversity
11.1.2 Employment Legislation
11.1.3 Security
11.2 Strategic International Human Resources Management
11.2.1 The Domestic Stage and Strategy
11.2.2 The Multidomestic Stage and Strategy
11.2.3 The Multinational Stage and Strategy
11.2.4 The Global Stage
11.3 Key HR Practices and Processes within an International Context
11.3.1 International Assignments
11.3.2 Purposes of International Assignments
11.3.3 Types of International Assignments
11.4 International Human Capital Demand and Supply
11.4.1 Forecasting Demand for Labour
11.4.2 International Recruitment and Selection
11.4.3 Labour Relations
11.5 Preparation for a Global Assignment
11.5.1 Pre-Assignment Training
11.5.2 Post-Assignment Activities
11.5.3 Career Development
Summary
Glossary
Discussion Questions
Exercises
References
Credits
CHAPTER 12: Mergers and Acquisitions
Learning Outcomes
Introduction
12.1 Mergers and Acquisitions
12.1.1 Mergers
12.1.2 Acquisitions
12.2 The Urge to Merge
12.2.1 Strategic Benefits
12.2.2 Financial Benefits
12.2.3 Management Needs
12.2.4 Merger Methods
12.2.5 The Success Rate of Mergers
12.3 Impact of Mergers
12.3.1 Financial Impact
12.3.2 Impact on Human Resources
12.4 Cultural Issues in Mergers
12.4.1 The Challenges of Merging Two Cultures
12.4.2 How to Effectively Blend Cultures
12.5 HR Issues in M&As
12.5.1 HR Planning
12.5.2 Selection
12.5.3 Compensation
12.5.4 Performance Appraisal
12.5.5 Training and Development
1 2.5.6 Labour Relations
12.5.7 Evaluation of Success
Summary
Glossary
Discussion Questions
Exercise
References
Credits
CHAPTER 13: Outsourcing
Learning Outcomes
Introduction
13.1 Outsourcing
13.2 The Rationale for Outsourcing
13.2.1 Financial Savings
13.2.2 Strategic Focus
13.2.3 Advanced Technology
13.2.4 Improved Service
13.2.5 Specialized Expertise
13.2.6 Organizational Politics
13.2.7 Benefits to Canada
13.3 Risks and Limitations of Outsourcing
13.3.1 Projected Benefits versus Actual Benefits
13.3.2 Service Risks
13.3.3 Employee Morale
13.3.4 Security Risks
13.3.5 Reduced Value
13.4 Management of Outsourcing
13.4.1 Selecting the Vendor
13.4.2 Negotiating the Contract
13.4.3 Monitoring the Arrangement
13.4.4 Policy Options to Limit Outsourcing
Summary
Glossary
Discussion Questions
Exercise
References
Credits
CHAPTER 14: HR Assessment and Analytics
Learning Outcomes
Introduction
14.1 The Importance of Evaluating HRM
14.1.1 Resistance
14.1.2 Rationale
14.2 The 6C Model of HRM Impact
14.2.1 Compliance
14.2.2 Client Satisfaction
14.2.3 Culture Management
14.2.4 Cost Control
14.2.5 Contribution
14.2.6 Collect and Convert
14.3 HR Analytics
14.3.1 HR Analysts
14.3.2 Ethics of HR Analytics
14.3.3 The Future of HR Analytics
14.4 Approaches to Measuring HRM Practices
14.4.1 Cost–Benefit Analysis
14.4.2 Utility Analysis
14.4.3 Auditing
14.4.4 Benchmarking
14.4.4 The HR Scorecard
14.4.5 Measuring the Worth of Employees
14.4.6 Universality of Best Practices
14.4.7 Separation of Cause and Effect
14.4.8 Successful Measurement
14.4.9 Reporting to Boards of Directors and Shareholders
Summary
Glossary
Discussion Questions
Exercise
References
Credits
From the Authors
To the love of learning.
Monica Belcourt
To Mary Jo, Jackson, and Claire, for the joy that you bring to my life.
Mark Podolsky
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 Resources 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 master's
program in HRM. She is the academic editor of the Human Resources Management series.
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. Her knowledge and experience in
strategic HR issues is based on her role as a board director for the Toronto French School,
CIBC Insurance, Human Resources Professional Association, and, currently, Brescia
University.
Dr. Belcourt was active in many professional associations and organizations. She was the
president of the Human Resources Professionals Association of Ontario. 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 associate professor at the School of Human Resources Management
at York University. Mark received his PhD in Human Resources and 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 grouplevel 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 practitioners
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.
About This Series
The management of human resources has become an important source of innovation,
competitive advantage, and productivity for organizations. More than ever, human
resources management (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 as well as improving the work lives of employees.
Increasingly, these professionals turn to published research and books on best practices
for assistance in the development of effective HR strategies. The texts in the Top Hat 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 the following:
•
Industrial Relations in Canada
•
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
The Top Hat Series in Human Resources Management represents a significant
development in the field of HRM for many reasons. Each text in the series is the first and
now bestselling 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 texts, 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 texts 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 is one more step on the road to the professionalization of the
HRM field where theory and applied research guide practice. The texts in the series present
the best and most current research in the functional areas of HRM. Research is
supplemented 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 texts 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 references provide opportunities for further discussion
and analysis.
As you read and consult the texts in this series, I hope you share my excitement in being
involved in 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
September 2022
About This Course: For Instructors
Welcome to the eighth edition of Strategic Human Resources Planning! This course offers a
range of resources to help you build and deliver an effective, engaging course that
challenges your students to master the material.
Course Structure
Within the course, each chapter of the eighth edition of Strategic Human Resources
Planning is organized (along with any related Instructor Resources) in a separate folder.
This format makes it easy to navigate your way through the content and to find the material
you need to make a dynamic lesson.
Chapter Folders
In each chapter reading folder, you'll find the following resources to build students' comfort
with and understanding of core concepts:
•
Chapter Readings include a range of activities, assessments, and interactive
resources to help students understand and retain key information.
o
Formative Assessment questions appear throughout the chapter for
students to check their comprehension of what they've just read.
o
Short Videos expand on core concepts and topics so students can see how
chapter reading content relates to real-world issues and events.
o
Interactive Figures present data in a clear and straightforward way, giving
students the option to explore how trends and statistics inform chapter
concepts.
o
Discussion Questions and Exercises at the end of the chapter reading help
students prepare for tests and assignments, encouraging them to see the big
picture by connecting concepts, trends, current events, and data
•
Slide Decks provide a lecture template for you to teach the chapter reading
content. Slide decks feature images from chapter readings, discussion and polling
questions, and teaching notes you can use to guide your presentations.
•
Case Studies provide unique scenarios through which students can apply the
knowledge obtained through the course of the lesson to real-life situations. The
case studies include questions that focus on the main issues, principles, and
theories described in the chapter. New multi-chapter case studies span several
chapters, building upon the knowledge gained in several areas and the conclusions
and decisions reached in earlier phases of the case study.
Instructor Resources
In the Instructor Resources folder, you'll find the following resources to help you assess
students' comprehension and plan for discussions and/or assignments:
•
The Instructor's Guide contains learning outcomes, chapter summaries, suggested
in-class and online activities, and additional exercises. It also includes suggested
answers to the Discussion Questions, Exercises, and Case Study Questions.
•
Test Bank questions cover content for each chapter reading, for use as summative
assessment or weekly quizzing to measure students' comprehension.
o
•
Test Banks include a mix of autograded and long-answer questions and can
be imported into the slides accompanying chapter readings or added directly
to the chapter reading text for extra practice.
Role-Play Exercises allow students to take on the role of an HR professional, an
employer, or an employee and act out a given scenario. Role-play scenarios take the
real-life application of the case studies and the rich content of the chapter one step
further by allowing students to enact decisions, discussions, and policies in setting
that can provide real-time feedback and the opportunity to hone interpersonal
skills.
About the Eighth Edition
The fundamental premise of this text is that different organizational strategies require
different human resources management (HRM) policies and practices. Strategic Human
Resources Planning, Eighth 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 professionals
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.
Features retained from the previous edition of this text include chapter learning outcomes,
extensive use of Canadian examples, the use of figures and tables to convey information
efficiently, and a glossary of terms.
New features added to the eighth edition include 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. Numbered learning
outcomes, numbered sections, and roll-over definitions have been added throughout each
chapter as well. Moreover, the end-of-chapter material includes new discussion questions,
exercises, and case studies to maximize the experience of each learner.
Chapter-by-Chapter Overview of This Edition
Chapter 1 lays the groundwork by introducing the concepts of both corporate and
business strategy. We spend some time explaining strategic choices because it is
imperative 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, Irving Oil Ltd. has a multitude of
businesses including ship building, transportation, oil refineries, gas stations, pulp and
paper plants, and industrial equipment and construction. Each business would have its
own strategy, with HR programs to achieve that strategy. Obviously, the retail operations of
the gas stations would rather require different HR planning and programs than construction
sites or oil refineries. Two types of business-level strategies are discussed.
This edition includes expanded descriptions of strategy. 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 describing and
differentiating these concepts, all with updated examples. An emerging topic in the world
of strategy is agility: the ability of an organization to adapt and thrive in changing
circumstances. In the HR world, there is a growing understanding 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.
Chapter 2 continues the introduction to strategy by embedding HRM strategy within an
organizational strategic framework. A model of strategic HR planning is introduced 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 theoretical 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. The important role of HR as a business partner is outlined. Coverage of goal
attainment is expanded. Finally, we conclude with a section that outlines the
characteristics of an effective 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
environment and the methods HR strategists use to scan the environment. In this chapter,
we discuss the stages of environmental planning. We list 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. There is an emphasis on the expanding role of technology. A new section
describes the attitudes of HR professionals towards the adoption 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.
The impact of the pandemic on multiple functions of HR is described. For this edition, we
have included a new section on the advantages and disadvantages of remote work. We
conclude with a description of how constituent groups influence HR policies.
Chapter 4, introduces the forecasting process and the general methods that are
commonly 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 project management and project
management styles, as these methods of organizing human capital are now commonly
used in some sectors, such as the high technology sector. 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 quantitative 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 understanding of how these methods
can be applied in the context of forecasting the demand for human capital. This edition
includes an expanded section on machine learning and its influence on the planning
process, and on the role of job analysis in forecasting human capital requirements.
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 relevant
applicant pool, and potentially decrease turnover. This edition also continues the
discussion of job analysis from Chapters 4 and 5 to include the role in forecasting the
supply of human capital.
Managerial succession planning, discussed in Chapter 7, is an important consideration for
ensuring that the organization has a stock of replacements for its managers. Succession
management has evolved from replacement planning for individual executives 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 assignments, and
mentoring and coaching are described. The importance of defining leadership
competencies and capabilities and creating a coaching culture are described. The role of
employees in their own career development is outlined as well as the role of the HR
department in this process. We conclude with a checklist for assessing the success of
succession planning.
Chapter 8 discusses 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. This edition includes expanded
discussion of the impact that technology has on recruitment and selection, training, and
performance appraisal. HR analytics are introduced in this chapter as they relate to the
development of HR dashboards. HR analytics are discussed in more detail in Chapter 14.
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 change 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 edition
includes expanded content around the use of mental models and the impact of technology
on organizational change initiatives. The chapter also includes a discussion of the role of
the HR function in bringing about successful organizational change.
Chapter 10 was written by Professor Terry Wagar of Saint Mary’s University. Starting with
definitions of 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 survivor 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, diversity issues facing expatriate workers, and the impact of
virtual global mobility.
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, elimination 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 contemplating a merger. This
chapter outlines the benefits of M&As, and compares the alleged benefits against the real
effectiveness of this strategy. New to this edition is an explanation of the reasons that small
businesses should consider a merger, and the situations where this is not a good idea. HR
has a significant role to play, as mergers often fail because HR issues are not managed in a
timely and effective manner. A critical component of the merger process is communicating
to key players. New to this edition is a section on effective communication strategies.
Making mergers successful is a critical skill (indeed it could be considered a core
competence) and suggestions for succeeding are provided.
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. A
new section on the legal rights of employees is included. We also include a section on
issues with the providers of outsourcing, and we discuss the evolving consumer backlash
to outsourcing.
Chapter 14 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 continues to track the emerging trend of using HR analytics, not
only to monitor employee behaviour but also to predict it. The chapter outlines the many
ways to evaluate effectiveness, and which areas to measure. The Five C model has been
updated (with new ideas for surveys, for example). A sixth C, the collection and conversion
of data to enable the prediction of employee behaviour, has been added. There is a need to
establish universal metrics of measurement and prediction. We include a list of the
characteristics of successful measurement.
As a part of the process to earn a professional HR designation, granted by the HR provincial
associations, applicants must undergo two assessments: the first 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.
Organization
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.
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.
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 14 discusses the best practices and options for evaluating the success of HRM
activities. The success of strategic HR planning depends, in great part, on one's ability to
measure results and to determine if goals have been met. Chapter 14 provides best
practices and strategy for evaluation.
Notes on Accessibility
Top Hat is committed to providing websites, applications, and content that create an
accessible and inclusive learning environment for as many students as possible. Along
with screen reader and keyboard navigation functionality, this textbook includes the
following features:
•
alternative text and, where required, long descriptions for images in the main text,
supplements, questions, and slides
•
text descriptions where required for third-party interactive features
•
sufficient colour contrast, patterns, and labeling in graphs
•
descriptive links to internal and third-party content
•
closed captioning or transcripts for videos
•
accessible slides (slide titles and reading order)
Top Hat may occasionally use third-party material and interactive features; however, Top
Hat cannot guarantee that such third-party material and interactive features will always
meet accessibility requirements.
While every effort has been made to make our content fully accessible, the following
components may not meet some students’ needs:
•
third-party interactive features
We recommend that instructors exercise discretion and provide an accessible alternative
or alternative means of participation where required.
About This Course: For Students
Welcome to the eighth edition of Strategic Human Resources Planning!
Chapter Folders
In each chapter reading folder, you'll find the following resources to build your comfort with
and understanding of core concepts:
•
•
Chapter Readings include a range of activities, assessments, and interactive
resources to help you understand and retain key information.
o
Formative Assessment questions appear throughout the chapter for you to
check your comprehension of what you've just read.
o
Short Videos expand on core concepts and topics so you can see how
chapter reading content relates to real-world issues and events.
o
Interactive Figures present data in a clear and straightforward way, giving you
the option to explore how trends and statistics inform chapter concepts.
o
Discussion Questions and Exercises located at the end of the chapter
reading help you prepare for tests and assignments, encouraging you to see
the big picture by connecting concepts, trends, current events, and data
Case Studies with questions focus on the main issues, principles, and theories
described in the chapter.
Notes on Accessibility
Top Hat is committed to providing websites, applications, and content that create an
accessible and inclusive learning environment for as many students as possible. Along
with screen reader and keyboard navigation functionality, this textbook includes the
following features:
•
alternative text and, where required, long descriptions for images in the main text,
supplements, questions, and slides
•
text descriptions where required for third-party interactive features
•
sufficient colour contrast, patterns, and labeling in graphs
•
descriptive links to internal and third-party content
•
closed captioning or transcripts for videos
•
accessible slides (slide titles and reading order)
Top Hat may occasionally use third-party material and interactive features; however, Top
Hat cannot guarantee that such third-party material and interactive features will always
meet accessibility requirements.
While every effort has been made to make our content fully accessible, the following
components may not meet your needs:
•
third-party interactive features
We recommend that you consult with your instructor about an accessible alternative or
alternative means of participation where required.
Chapter 1: Strategic Management
Figure 1.1 Strategic human resource management is increasingly being recognized as
having an impact on important organizational outcomes. [1]
Learning Outcomes
L.O. 1.1 Discuss why managers need to examine the human resources implications of their
organizational strategies, as well as the various terms used to define strategy and its
processes.
L.O. 1.2 Describe organizational strategies, including how corporate strategy differs from
business strategy.
L.O. 1.3 Discuss the steps involved in the strategic planning process.
L.O. 1.4 Explain the benefits of strategic planning.
Introduction
Strategic Management at the Bay
Hudson’s Bay Company (HBC) is Canada’s oldest organization, 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 demonstrate 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 the talent management and succession
planning systems HBC had 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
dollars. The organization acquired one retailer in Germany and another in Belgium (after
divesting its stores in Holland). Like other organizations, HBC closed its retail stores in
2020 in response to the pandemic and began reopening in May 2021.
Figure 1.2 HBC has a long history of acquisitions, including that of Saks Fifth Avenue. [2]
The online business (the Bay) was separated from the physical stores (called Hudson's
Bay). The company spent more than 100 million dollars over five years on robotics in
fulfilment centres, and in 2021 the Bay sold 1 billion dollars in e-commerce for the first
time in its 352-year history.
The organization is currently positioned as a holding company with businesses in retail
(such as Saks Fifth Avenue, shown in Figure 1.2), technology, and real estate. 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.
Video 1.1 presents a brief history of the company and how it has adapted to survive.
Video 1.1 Strategic Decision-Making at HBC: Adapt to Survive [3]
Sources: CBC News (2011); HBC Heritage (n.d.); Saba (2022)
1.1 A Need for Strategic HRM
Scan any Canadian media feed and you will learn about stories such as these, all of them
with HR implications:
•
Rogers Communications signed a deal to purchase Shaw Communications for 26
billion dollars (Video 1.2).
Video 1.2 Rogers to Buy Shaw Communications [4]
•
Thousands of workers are losing jobs as cannabis industry shutters greenhouses
(Subramaniam 2022).
•
Robots are replacing workers. Waste Connections, a garbage and recycling
company, says that labour shortages have accelerated the adoption of technology.
For example, optical sorters that scan and separate junk can sort 1,000 picks a
minute, while a human may average 30 picks. Plus, the robots don't get sick, tired,
or distracted and they take no breaks (Kirby 2022). While robots may replace some
workers, Video 1.3 points out that the demand for workers to create and manage
robots will increase.
Video 1.3 Robots and the Labour Market [5]
•
Gig workers, whose jobs are controlled by logarithms, represent about 10 percent of
the labour force in Canada. They have no job security, no minimum wages, and no
benefits (Subramaniam 2022a).
•
Strawhouse, a developer of digital marketing tools based in Kelowna, BC, grew
3,000 percent in two years (Nichols 2017).
•
Canada is facing the toughest labour market in decades. Companies are responding
by changing the degree requirements for jobs to skill requirements (The Conference
Board of Canada 2022).
•
Nearly one in five employees in Canada are working fully remote, about four times
the number prior to the pandemic (The Conference Board of Canada 2022). Figure
1.3 shows teleworkers' preferences for remote work following COVID-19.
The common theme in these stories is that the adoption of any organizational strategy has
serious HRM implications. In most cases, unless the HRM strategy (for example,
internationalization or downsizing) is appropriately formulated and skillfully implemented,
the success of the organizational strategy is at risk.
We have written this book to provide answers to questions about the proper alignment 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.
1.1.1 Strategy
Strategy is the formulation of organizational objectives, competitive scopes, and action
plans for gaining advantage (Collis and Rukstad 2008, 82–90). 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 (Anthony 1993). We have presented one definition of strategy, but
there are many others. A sampling is found in HR Planning Notebook 1.1.1.
HR Planning Notebook 1.1.1: Descriptions of Strategy
Concepts of strategy are numerous. Figure 1.4 is a guide to some common terms used
throughout the text and in the organizations where you work.
Figure 1.4 Common Terms Related to Concepts of
Strategy
The top management team determines strategy through a process of environmental
analysis (discussed in Chapter 3, Environmental Influences on HRM) 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
organizational outcomes provide a feedback loop to the strategic planning process led by
senior 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 five to 10 years and then
formulate plans for achieving the goals. However, other experts do not perceive 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, few could have predicted the impacts
of the COVID-19 pandemic. 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 by competitors, among
others. For example, the largest retailer in the world, Amazon, has disrupted and
bankrupted many traditional retailers. Some other organizational events that precede
strategic change are outlined in HR Planning Notebook 1.1.2.
HR Planning Notebook 1.1.2: 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: A new CEO may ask questions about the assumptions underlying the
strategy and challenge the status quo.
•
Threat of a change in ownership: Similar to a change in CEO, new owners (or a
threat of new ownership) cause a reconsideration of the effectiveness 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 technology , customer preferences, or
industry regulations will trigger a change in strategy.
Sources: Gordon et al. (2000, 911–945); Wheelen and Hunger (2008, 19)
Because of the unpredictability of trigger events, many planners look at a relatively 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. Video 1.4 describes how employers
must adapt their recruitment strategies in response to crises such as the pandemic.
Video 1.4 Redirecting Strategy in Response to Crises [6]
The process of subtly redirecting strategy to accommodate these changes is called logical
incrementalism (Quinn 1980). 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 (Collins 2001). Firms can
wait passively 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. The discarded strategy is one
that was deemed inappropriate due to changing circumstances. Figure 1.5 captures these
various concepts of strategy.
Figure 1.5 The Reality of the Strategic Process. Adapted from Mintzberg (1987, 11–24)
1.1.2 Why Develop 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, they are 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 contingencies and internal competencies, recognizes multiple groups of participants, and is
concerned with measurable performance—just like the flight plan (Lengnick-Hall and
Lengnick-Hall 1990).
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.
1.2 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 organization. In one sense, pure, unique organizational 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, 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 (Duane 1996). 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:
•
Corporate strategies
•
Business strategies
1.2.1 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. A firm's corporate
strategy includes the markets in which it will compete. The focus is on domain selection.
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 (Figure 1.6).
Figure 1.6 Corporate StrategiesLong Text Description
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 turnaround,
divestiture, liquidation, and bankruptcy.
1) Turnaround
A turnaround strategy (sometimes called a retrenchment strategy) is one in which
managers try to restore money-losing businesses to healthy profitability or government
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. HR Planning Today 1.2.1 describes the history of the turnaround efforts
of McDonald’s.
HR Planning Today 1.2.1: Turnaround At McDonald's
The McDonald’s burger chain has, for several decades, been a success story. It is the
second-largest restaurant chain in the world (as measured by revenue) and the secondlargest private employer (about 200,000 employees). Every year has seen increases in outlets, people served, profits, and shareholder value. Today, McDonald’s employees serve
about 69 million people daily in 37,855 outlets in over 100 countries. Many different
strategies led to this success.
Figure 1.7 McDonald's growth strategy includes the introduction of new products. [7]
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 introductions was its switch to trans fat-free cooking oil
for french fries and the use of organic milk. 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 interests. 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, and in 2020 it introduced a plant-based burger.
A third attempt was to diversify; McDonald’s added high-margin McCafé coffees in 2009
(Figure 1.7) and Chipotle BBQ sauce in 2011 to broaden its customer base.
Finally, as consumers were facing the economic recession, McDonald’s boosted its lowprice dollar-menu items, which included a double cheeseburger and a hot fudge sundae.
At a recent presentation at Ryerson University, 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).
No company is immune to unforeseen external events. McDonald's sold its business
(about 9 percent of its global revenue with 60,000 employees) in Russia because of the
2022 attack on Ukraine.
Sources: (Lock 2022); Koenig (2022); McDonald's (2017); Cowan (2014); Olive (2014);
Goold (2002); Schumpeter (2011)
2) Divestiture
Divestiture refers to spinning off a business as a financially and managerially independent
company or selling it outright (Thompson et al. 2010). For example, Nokia divested its
smartphone business to Microsoft. Here in Canada, the private equity fund NRDC acquired
HBC for roughly 1.1 billion dollars in 2008. In 2011, it divested one of HBC’s weakest
chains, Zellers, which was sold to Target for more than 1.8 billion dollars, much higher than
the price NRDC had paid for HBC (CBC 2011).
3) 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. J Crew and Brooks Brothers are examples of liquidation, where some
assets (real estate) may have been sold. Video 1.5 describes how Target miscalculated the
Canadian market.
Video 1.5 Target Canada Liquidation [8]
4) Bankruptcy
Bankruptcy occurs when a company can no longer pay its creditors, and, usually, one of
them demands that the loan be repaid immediately. 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. Video 1.6 discusses how credit
counsellors and bankruptcy trustees were inundated with calls from people looking for
advice during the pandemic.
Video 1.6 Bankruptcy Applications during COVID-19 [9]
Restructuring strategies, like growth strategies, have profound effects on HR issues, such
as managed turnover, selective layoffs, transfers, increased demands on remaining
employees, and renegotiated labour contracts. These issues are described in Chapter 10,
Downsizing and Restructuring.
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 selection, rapidly rising
wages, and expanded orientation and training budgets, depending on how the organization
chooses to grow. Amazon and Uber are good examples of companies with growth
strategies.
Growth can be achieved in several ways: incrementally, internationally, or by mergers and
acquisitions.
1) 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: introducing skin-care lotion and hair conditioner for
babies
•
Increasing the products: adding Pringles potato chips to a product mix of cleaning
and health care products
•
Changing the distribution networks: adding drugstores to grocery stores
•
Using technology to manage just-in-time customer purchasing
2) 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 a Western HR manager. The HR implications for an
international strategy are described in Chapter 11, Strategic International HRM.
3) Mergers and Acquisitions
Quantum leaps in growth can be achieved through acquisitions, 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, Mergers and Acquisitions.
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, as
they are presumed to be effective for the 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. 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 1.2.2 for the strategies implemented by Cara Operations Ltd. (Cara), recently
renamed Recipe Unlimited Corporation.
HR Planning Today 1.2.2: Multiple Strategies
The mission statement of Recipe Unlimited Corporation (formerly Cara Operations)
declares that its aim is to be Canada’s leading integrated restaurant company. Recipe
Unlimited owns or controls food outlets such as Harvey’s, Swiss Chalet, and Burgers Priest
in 1,300 locations with 60,000 employees. The company 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, as it was then known, began an aggressive acquisitions 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. In 2013, Cara merged with Fairfax to acquire control of Swiss
Chalet and East Side Mario’s. It acquired New York Fries (2014), St. Hubert Chicken
(2016), Franworks Group (which owned the Original Joe's, State & Main, and
Elephant & Castle brands) (2016), the Pickle Barrel (2017), and Burgers Priest
(2021).
•
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 (a distribution
company) in 2007. In 2010, it sold its airline catering business, Cara Airline
Solutions, to Gategroup, in order to focus its operation on restaurants. It also
divested several restaurant chains, such as Milestones Bar and Grill.
•
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, former president of corporate development at Cara,
described the organization's business strategy as “pursuing a portfolio of distinct
brands, each of which targets a differentiated consumer segment.”
•
Mergers: In 2018, Cara merged with The Keg (Figure 1.8) and changed its name to
Recipe Unlimited Corporation.
Figure 1.8 Cara Operations Ltd. merged with The Keg and changed its name to Recipe
Unlimited Corporation. [10]
During the COVID-19 pandemic, the company faced the very difficult decision of closing all
restaurants before it was ordered to do so. And the company survived.
Sources: Hennessey (2022); Recipe (n.d.); Williams (2018); interview with Arjen Melis,
former president of Corporate Development, Cara Operations Limited (2008); The
Canadian Press (2010)
1.2.2 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, Irving Oil Ltd. has a multitude of businesses including ship building,
transportation, oil refineries, gas stations, pulp and paper plants, and industrial equipment
and construction. Each business would have its own strategy, with HR programs to achieve
that strategy. Obviously, the retail operations of the gas stations would require different HR
planning and programs than construction sites or oil refineries.
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. Business strategy is the determination
of the basic long-term goals and objectives of an organization and the adoption of courses
of action and the allocation of resources necessary to achieve the goals (Chandler 1962).
While corporate strategies focus on domain selection, business strategy focuses on
domain navigation. How will the company compete against rival firms to create value for
customers? 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 (Thompson et al. 2010).
Corporate strategies and business strategies are differentiated in the following ways.
Corporate strategies are concerned with questions such as these: Should we be in business? 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, highend, and charter. The discount airline Zip and then Rouge, as shown in Figure 1.9, 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.
Figure 1.9 Air Canada was having difficulties with its business strategy when it attempted
to segment the market by establishing a number of sub-brands such as Rouge. [11]
We will spend some time describing the strategic planning process, because HR professionals 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.
1.3 The Strategic Planning Process
A strategic plan describes the organization’s future direction, performance targets, and
approaches to achieve the targets (Thompson et al. 2010). There are many models or
approaches to the development and implementation of strategy. The steps involved in
strategic planning are listed below (Woodcock and Beamish 2003):
•
Step 1: Establish the mission, vision, and values.
o
•
Step 2: Develop objectives.
o
•
Who are we?
Where do we want to be?
Step 3: Analyze the external environment.
o
What may change?
•
Step 4: Identify the competitive advantage.
o
•
Step 5: Determine the competitive position.
o
•
How can we compete?
Step 6: Implement the strategy.
o
•
What is our advantage?
What programs will result in success?
Step 7: Evaluate the performance.
o
How will we measure success?
1.3.1 Establish the Mission, Vision, and Values
A mission statement articulates the purpose for which, or the reason, an organization
exists (Certo and Peter 1993). It also stipulates the value the organization offers for
its customers and clients (Kaplan and Norton 2008, 64–77). Search for the mission
statements of organizations for which you work or with which you do business.
Many believe that conveying a strong sense of mission is the most important role for the
CEO. Ryan Gellert, CEO of Patagonia, has articulated the company's climate goals: “The
climate crisis poses an existential threat; if we don’t clean up our mess, we’ll be history.
Business has a role to play, but it’s only one lever. We must use all the tools at our disposal
to secure a safer, more just future” (Patagonia 2022). Use Question 1.13 - 1.16 as an
exercise to rate an organization’s mission statement (TCM.com 2021). Refer to HR Planning
Today 1.3.1 to find out if you can recognize the listed mission statements.
HR Planning Today 1.3.1: 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?
We help people and communities in Canada and around the world in times of need
and support them in strengthening their resilience. [12]
To build the best product, cause no unnecessary harm, use business to inspire and
implement solutions to the environment crisis. [13]
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?” (Certo and Peter 1993). A good vision
statement sets a clear and compelling goal that serves to unite an organization’s efforts
(Figure 1.10). Search for the vision statement of Microsoft as a good example of a clear and
compelling goal.
Figure 1.10 Strong and clear mission and vision statements enable all employees to work
toward common goals. [14]
Values are the basic beliefs that govern individual and group behaviour in an organization.
While vision and mission statements answer the questions about what must be
accomplished, values answer the question “How must we behave?”. Some examples of
core values are perseverance and integrity, such as you would find in 3M company's core
values (Mission-statement.com n.d.).
Google refers to its values, written when the company was just a few years old, as "Ten
things we know to be true," which include statements like the following (Google 2022):
•
Focus on the user and all else will follow.
•
It's best to do one thing really, really well.
•
Fast is better than slow.
•
You can be serious without a suit.
The mission, vision, and value statements of Loblaw, Canada's food and pharmacy leader
(with 190,000 full- and part-time employees), are presented in HR Planning Today 1.3.2
(Loblaws 2022).
HR Planning Today 1.3.2: Loblaw's Mission, Vision, and Value Statements
Mission
Loblaw's mission is to be Canada's best food, health and home retailer by exceeding
customer expectations through innovative products at great prices (Figure 1.11). The
company's priorities include giving back to communities in which it operates, sourcing with
integrity and caring for the environment.
Figure 1.11 Loblaws Store Interior [15]
Vision
Loblaw's vision is "to be the best in food, health and beauty — to help Canadians Live Life
Well®." Loblaw's purpose — Live Life Well — supports the needs and well-being of
Canadians, who make one billion visits each year to the company's stores.
Core Values
•
Care - Improving the health and well-being of all Canadians.
•
Ownership - Approaching every day with personal accountability and commitment.
•
Respect - Acting with integrity, respect, and openness every day.
•
Excellence - Leading through innovation and superior performance.
Source: Loblaw Companies Limited (2022, 2022a, 2022b)
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 in HR Planning Notebook 1.3.1.
These values should then be part of every orientation 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 organizational
activities and as a guide for appropriate behaviour
HR Planning Notebook 1.3.1: 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 consensus on a short list of core
values.
5. Have subgroups take one value, and develop a definition 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.
1.3.2 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 (Crossan, Fry, and Killing 2002). Goals can be classified as
hard or soft. Hard goals always include numbers, usually relative to performance in the
previous 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 2024 by 7 percent over 2023.”
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 opportunities
for professional development. According to Campbell (1997, 931–932), typical hard goals
for corporations include a focus on the following:
•
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)
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
(Kaplan and Norton 2007, 150–161). An advantage of this framework, discussed more
thoroughly in Chapter 14, HR Assessment and Analytics, is that it forces each
organizational member to think about how his or her actions can contribute to
organizational strategy implementation.
1.3.3 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, Environmental Influences on HRM.
1.3.4 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 (Peteraf and Barney 2003, 309–323). 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.
•
Intangible assets: These are future economic resources that have been generated
from past organizational events. These assets lack substance and form. Examples
are human capital, reputation, goodwill, trust, and copyright.
•
Capabilities: These are a complex combination of people and processes that represent the firm’s capacity to exploit resources to achieve the firm’s objectives (Hitt
et al. 2002). What is the organization good at doing? Examples are managerial
capabilities, innovative capabilities, marketing capabilities, 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 (Ulrich and Smallwood 2004, 119–127).
HR Planning Notebook 1.3.2 describes an emerging capability.
HR Planning Notebook 1.3.2: Emerging Capability
In both academic research and the practical world of business, an emerging capability
is agility, defined as the organization's capacity to respond, adapt quickly, and thrive in
changing environments, and the ability of organizations to build and reconfigure resources
and integrate cultures in order to be able to adapt to rapidly changing environments.
The corollary of agility is persistence – the ability to bounce back from difficulty and
absorb, learn, and even re-invent.
The pandemic was a test of organizations' agility and resilience, and many passed the test.
Source: Holbeche (2022, 73)
The resource-based view suggests that for these resources and capabilities to provide a
sustained competitive advantage, they must meet four criteria (Barney 1995, 118–128):
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 shown in Figure 1.12 in HR Planning Today 1.3.3. Besides culture, many
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 behaviours
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 (Collis and Montgomery 2008, 140–150). As you can see, human
resources play a key role in creating most capabilities.
HR Planning Today 1.3.3: Culture as a Competitive Advantage
Figure 1.12 VRIO at Southwest (Source: Allan Afuah, Business Models. A Strategic
Approach © 2004, Table 10.4, p. 207. Reproduced with the permission of McGraw-Hill
Education.)
Figure 1.13 Kimberly-Clark specializes in category-killer brands. [16]
Resources and capabilities become core competencies when they serve as a firm’s
competitive advantage. Core competencies distinguish a company competitively and
reflect its personality (Hoskisson, Hitt, and Ireland 2004). In other words, a core
competency is a competitively important activity that directly contributes to a company’s
strategy (Thompson et al. 2010). 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, depicted in Figure 1.13) (Collins 2001).
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 environment
(Teece, Pisan, and Shuen 1997, 509–533)—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 (Kary and Sandler 2011).
With the information from external environment and internal competence analysis,
managers can summarize the conclusions using a SWOT analysis, which is a tool for
analyzing a company’s resource capabilities and deficiencies, its market opportunities,
and the external threats to its future (Thompson et al. 2010). 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 disadvantage relative to competitors (Thompson et al.
2010).
•
Opportunities and threats are environmental conditions 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 dollars 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) (Dess and Lumpkin 2003).
1.3.5 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 multiple
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 fundamental benefits it has chosen to offer in the marketplace.
A value proposition tells prospects why they should do business with you rather than your
competitors, and makes the benefits of your products or services crystal clear from the
outset. The value proposition of the Apple iPhone is "The Experience IS the Product"
(Shewan 2022).
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 competitive strategies
(Porter 1985):
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, such as Walmart, shown in
Figure 1.14, 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 superior 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
requirements of a very narrow market segment. For example, Au Pied de Cochon in
Montreal sells a 39-dollar hamburger that uses sirloin meat and fois gras.
Figure 1.14 Walmart's low-price value proposition explains why customers should choose
it over competitors. [17]
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 categories. Most textbooks on strategy suggest that there are really only three competitive
positions: cost, differentiation, and focus.
1.3.6 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 techniques 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 planning. 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, Aligning HR with Strategy. 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 learn in Chapter 14,
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 professionals 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.
1.3.7 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 (Figure 1.15). The successful implementation of a strategy is judged by the
ability to meet financial targets such as profits, and the ability to meet benchmarked ratios
of efficiency and effectiveness such as research and development (R&D) expenses to
sales, or sales to assets. As you will learn 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.
Figure 1.15 There are many benefits to formulating and evaluating organizational strategy.
[18]
1.4 Benefits of Strategy Formulation
Working through the strategic planning process has many benefits. These benefits are
listed in Table 1.1
Table 1.1 Benefits of Strategic Planning
Benefit
Description of Benefit
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 by 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.
Loading...
Loading...
1.4.1 Chapter Structure in Relation to Strategy
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); and the ways to implement an organizational change (Chapter 9), which
will help with the following chapters that deal with determining the HR implications 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 1.16 graphically summarizes the
organization of this text.
Figure 1.16 Overview of the Organization of the TextLong Text Description
Summary
L.O. 1.1 A strategy is a planned process whereby organizations can map out a set of
objectives and methods for 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. HR managers need to examine the human resources implications
of their organizational strategies.
L.O. 1.2 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 competitive position. Corporate strategies include restructuring (turnaround, divestiture,
liquidation, and bankruptcy). Another corporate strategy is growth, which can be achieved
through incremental growth, international growth, and mergers and acquisitions.
L.O. 1.3 The seven steps of the strategic planning process are: establishing the mission,
vision, and values; developing objectives; analyzing the external environment; identifying
the competitive advantage; determining the competitive position; implementing the
strategy; and evaluating the performance. It is important to understand the difference
between a mission statement and a vision statement. A good vision statement establishes
a clear and compelling goal that serves to unite the efforts of an organization. A mission
statement provides an answer to the question, "Who are we?" The basic beliefs that govern
individual and group behaviour in an organization are known as an organization's values.
L.O. 1.4 Strategic HR planning helps HR professionals understand business needs and
create the kind of HR competencies that build competitive advantage. Table 1.1 describes
the benefits of strategic of strategic planning.
Glossary
Acquisition The purchase of one company by another.
Agility An organization's capacity to respond, adapt quickly, and thrive in changing
environments, and the ability of organizations to build and reconfigure resources and
integrate cultures in order to be able to adapt to rapidly changing environments.
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.
Business strategy Plans to build a competitive focus in one line of business.
Capabilities A complex combination of people and processes that represent the firm’s
capacity to exploit resources that have been specially integrated to achieve a desired
result.
Competitive advantage The characteristics of a firm that enable it to earn higher rates of
profit than its competitors.
Core competencies Resources and capabilities that serve as a firm’s competitive
advantage.
Corporate strategy Organizational-level decisions that focus on long-term survival.
Discarded strategy The plan that was deemed inappropriate, and therefore not used, due
to changing circumstances.
Divestiture The sale of a division or part of an organization.
Dynamic capabilities The ability to adapt and renew competencies in accordance with
the changing business environment.
Emergent strategy The plan that changes incrementally due to environmental changes.
Intended strategy The formulated plan.
Liquidation The termination of a business and the sale of its assets.
Merger Two organizations combine resources and become one.
Mission statement An articulation of the purpose of the organization and the value it
creates for customers.
Persistence The ability to bounce back from difficulty and absorb, learn, and even reinvent.
Procedures The steps required to get a job done.
Program The steps or activities necessary to accomplish a goal.
Realized strategy The implemented plan.
Strategic implementation The process by which a strategy is put into action.
Strategy The formulation of organizational objectives, scopes, and action plans for gaining
advantage.
Turnaround strategy An attempt to increase the viability of an organization.
Value proposition A statement of the fundamental benefits of the products or services
being offered in the marketplace.
Values The basic beliefs that govern individual and group behaviour in an organization.
References
Anthony, W. P., P. L. Perrewe, and K. M. Kacmar. 1993. Strategic Human Resources
Management. Fort Worth: Harcourt Brace Jovanovich.
Barney, J.B. 1995. “Looking Inside for Competitive Advantage.” The Academy of
Management Executive (1993-2005) 9 (4): 49–61. https://www.jstor.org/stable/4165288.
Campbell, A. 1997. “Mission Statements.” Long Range Planning 30 (6): 931–32.
https://doi.org/10.1016/s0024-6301(97)00084-8.
The Canadian Press. 2010. “Cara Operations Selling Airline Catering Business to Swiss
Company Gategroup.” The Canadian Press. Accessed July 21,
2022. https://www.cbc.ca/news/business/cara-sells-airline-food-division-1.921307.
Canadian Red Cross. 2015. Accessed July 22, 2022.
https://www.redcross.ca/crc/documents/Where-We-Work/Canada/Alberta/ab-generalbrochure2015.pdf.
CBC. 2011. “Target Buys Zellers Leases for $1.8B | CBC News,” January 14, 2011.
https://www.cbc.ca/news/business/target-buys-zellers-leases-for-1-8b-1.981132.
Certo, S. C. and J. P. Peter. 1993. Strategic Management: A Focus on Process, 2nd ed.
Boston: Irwin.
Chandler, A. D. 1962. Strategy and Structure : Chapters in the History of the American
Industrial Enterprise. Washington: Beard Book.
Collins, J. 2001. Good to Great. New York: Harper Business, 2001.
Collis, D.J. and M.F. Rukstad. 2008. “Can You Say What Your Strategy Is?” Harvard Business
Review, Vol. 86: 82–90.
Collis, D.J. and C.A. Montgomery. 2008. “Competing on Resources.” Harvard Business
Review 86: 140–150.
Crossan, M. M, J. N. Fry, and J. P. Killing. 2002. Strategic Analysis and Action. Toronto:
Prentice Hall.
Cowan, J. 2014. “McDonald’s Is in Trouble. Meet the Canadians Leading Its McComeback.”
Canadian Business - Your Source for Business News. April 28, 2014.
https://archive.canadianbusiness.com/companies-and-industries/mccomeback/.
Dess, G.G. and G.T. Lumpkin. 2003, Strategic Management: Creating Competitive
Advantages. Boston: McGraw-Hill.
Duane, M.J. 1996. Customized Human Resource Planning. Westport: Quorum Books.
Google. 2022. “Ten Things We Know to Be True -.” About.google. 2022. Accessed June 7,
2022. https://about.google/philosophy/.
Goold, D. 2002. “McDonald’s Woes a Matter of Taste.” The Globe and Mail, November 18,
2002. Accessed August 26, 2022. https://www.theglobeandmail.com/report-onbusiness/mcdonalds-woes-a-matter-of-taste/article757825/.
Gordon, S.S., W.H. Stewart, R. Sweo, and W.A. Luker. 2000. “Convergence versus Strategic
Reorientation: The Antecedents of Fast-Paced Organizational Change.” Journal of
Management 26 (5): 911–945. https://doi.org/10.1016/S0149-2063(00)00063-5.
HBC Heritage. n.d. “HBC Heritage — A Brief History of HBC.” Accessed July 22, 2022.
Www.hbcheritage.ca. https://www.hbcheritage.ca/history/company-stories/a-briefhistory-of-hbc.
Hennessey, F. 2022. "Restaurants Served with a Challenge: Recipe Unlimited CEO
Recounts Chaotic First Days of the Pandemic." Toronto Star, B5.
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.
Holbeche, L. 2022. Aligning Human Resources and Business Strategy, 3rd ed. Routledge,
London.
Hoskisson, R.E., M.A. Hitt, and R.D. Ireland. 2004. Competing for Advantage. Mason:
Thompson South-Western.
Kaplan, R.S. and D.P. Norton. 2008. “Mastering the Management System.” Harvard
Business Review (January): 64–77.
Kaplan, R.S. and D.P. Norton. 2007. “Using the Balanced Scorecard as a Strategic
Management System.” Harvard Business Review (July/August): 150–161.
Kary, T. and L. Sandler. 2011. “Borders Files Bankruptcy, Is Closing up to 275 Stores.”
Bloomberg.com, February 16, 2011. http://www.bloomberg.com/news/2011-0216/borders-book-chain-files-for-bankruptcy-protection-with-1-29-billion-debt.html.
Kirby, J. 2022. “The Robotic Revolution Is Coming to a Workplace near You.” The Globe and
Mail, May 21, 2022. https://www.theglobeandmail.com/business/article-automationrobots-work-productivity/.
Koenig, D. 2022. “McDonald’s to Sell Its Russian Business over Moscow’s Invasion of
Ukraine.” The Globe and Mail, May 16, 2022. Accessed August 8, 2022.
https://www.theglobeandmail.com/business/international-business/article-mcdonaldsto-sell-its-russian-business-over-moscows-invasion-of/.
Lengnick-Hall, C. A. and M. L. Lengnick-Hall. 1990. Interactive Human Resource
Management and Strategic Planning. New York: Quorum.
Loblaw Companies Limited. 2022. “Who We Are | Loblaw Companies Ltd.” Www.loblaw.ca.
Accessed August 8, 2022. https://www.loblaw.ca/en/who-we-are.
Loblaw Companies Limited. 2022a “What We Do | Loblaw Companies Ltd.”
Www.loblaw.ca. Accessed August 8, 2022.https://www.loblaw.ca/en/what-we-do.
Loblaw Companies Limited. 2022b. “Careers | Loblaw Companies Ltd.” Www.loblaw.ca.
Accessed August 8, 2022. https://www.loblaw.ca/en/life-at-loblaw.
Lock, S. 2022. “McDonald’s Number of Employees 2021.” Statista. July 27, 2022.
https://www.statista.com/statistics/819966/mcdonald-s-number-of-employees/.
McDonald's. 2017. “McDonald’s: Burgers, Fries, Salads & More. Quality Ingredients.”
Mcdonalds.com. 2017. http://www.mcdonalds.com.
Mehdi, T. and R. Morissette. 2021. “Working from Home: Productivity and Preferences.”
Www150.Statcan.gc.ca. April 1, 2021. https://www150.statcan.gc.ca/n1/pub/45-280001/2021001/article/00012-eng.htm.
Mintzberg, H. 1987. “The Strategy Concept I: Five Ps for Strategy.” California Management
Review 30 (1): 11–24. https://doi.org/10.2307/41165263.
Mission Statement. n.d. “Patagonia Mission Statement 2022 | Patagonia Mission & Vision
Analysis.” Mission-Statement.com. Accessed August 16, 2022. https://missionstatement.com/patagonia/.
Nichols, T. 2017. “Fastest Growth in Canada.” Okanagan Edge. September 15, 2017.
https://okanaganedge.net/2017/09/15/fastest-growing-startups-kelowna/.
Olive, D. 2014. “Don’t Count the Behemoth Out Yet.” The Toronto Star (2014).
Patagonia. 2022. “Climate Goals - Patagonia.” Www.patagonia.com. 2022. Accessed
August 23, 2022 https://www.patagonia.com/climate-goals/.
Peteraf, M.A. and J.B. Barney. 2003. “Unraveling the Resource-Based Tangle.” Managerial
and Decision Economics 24 (4): 309–323. https://doi.org/10.1002/mde.1126.
Porter, M.E. 1985. Competitive Advantage. New York: Free Press.
Quinn, J.B. Strategies for Change: Logical Incrementalism. Homewood: Richard D. Irwin,
1980.
Recipe. n.d. “Investor Dashboard.” Recipeunlimited.investorroom.com. Accessed August
13, 2022. https://recipeunlimited.investorroom.com/.
Saba, R. 2022. “Hudson’s Bay Is Spending Millions to Reinvent Itself as a Digital-First
Retailer — but It May Be Too Little, Too Late.” Thestar.com. June 25, 2022.
https://www.thestar.com/business/2022/06/25/hudsons-bay-is-spending-millions-toreinvent-itself-as-a-digital-first-retailer-but-it-may-be-too-little-too-late.html.
Schumpeter. 2011. “McDonald’s the Innovator.” The Economist. June 16, 2011.
https://www.economist.com/blogs/schumpeter/2011/06/fast-food-and-culturalsensitivity.
Shewan, D. 2022. “7 of the Best Value Proposition Examples We’ve Ever Seen.”
WordStream. Accessed August 13, 2022.
https://www.wordstream.com/blog/ws/2016/04/27/value-proposition-examples.
Subramaniam, V. 2022. “Small Towns, Migrant Workers Are Casualties of the Continuing
Cannabis Industry Bust.” The Globe and Mail, May 22, 2022.
https://www.theglobeandmail.com/business/article-cannabis-industry-bust-aurora-sunsmall-towns/.
Subramaniam, V. 2022a. “How Uber Got Almost Everything It Wanted in Ontario’s Working
for Workers Act.” The Globe and Mail, May 24, 2022.
https://www.theglobeandmail.com/business/article-uber-gets-almost-everything-itwants-in-doug-fords-working-for-workers/.
TCM.com. 2021. “Assessing Your Mission Statement.” Www.trainingcoursematerial.com.
September 18, 2021. https://www.trainingcoursematerial.com/free-trainingarticles/strategic-planning-and-thinking/assessing-your-mission-statement.
Teece, D.J., G. Pisan, and A. Shuen. 1997. “Dynamic Capabilities and Strategic
Management.” Strategic Management Journal 18 (7): 509–533.
https://doi.org/10.1002/(SICI)1097-0266(199708)18:7%3C509::AID-SMJ882%3E3.0.CO;2Z.
The Conference Board of Canada. 2022. “Under Pressure: Tight Labour Markets Are Driving
Major Change.” The Conference Board of Canada. June 7, 2022.
https://www.conferenceboard.ca/e-library/abstract.aspx?did=11669.
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.
Ulrich, D. and N. Smallwood. 2004. “Capitalizing on Capabilities.” Harvard Business
Review (June): 119–127. PMID: 15202293.
Wheelen, T.L. and J.D. Hunger. 2008. Concepts in Strategic Management and Business
Policy, 11th ed. Toronto: Prentice Hall, 19.
Williams, P. 2018. “Cara Operations Purchase of St-Hubert and Value Creation Case
Analysis and Case Solution.” Case48. August 9, 2018. https://www.case48.com/caseanalysis/23128-Cara-Operations-Purchase-of-St-Hubert-and-Value-Creation.
Woodcock, C. P. and P. W. Beamish. 2003. Concepts in Strategic Management, 6th ed.
Toronto: McGraw-Hill Ryerson.
Credits
[1] Image by Kampus Production CC0
[2] Image courtesy of Raysonho @ Open Grid Scheduler / Grid Engine under CC0 1.0
[3] Video courtesy of Financial Times/YouTube
[4] Video courtesy of Global News/YouTube
[5] Video courtesy of CBC News: The National/YouTube
[6] Video courtesy of Global News/YouTube
[7] Image by Tetiana Horielova on Unsplash
[8] Video courtesy of CBC News: The National/YouTube
[9] Video courtesy of CBC News: The National/YouTube
[10] Image courtesy of Raysonho @ Open Grid Scheduler / Grid Engine under CC0 1.0
[11] Image courtesy of Martin Kulcsar under CC BY-SA 4.0
[12] Canadian Red Cross. 2015. Accessed July 22, 2022.
https://www.redcross.ca/crc/documents/Where-We-Work/Canada/Alberta/ab-generalbrochure2015.pdf.
[13] Patagonia. 2022. “Climate Goals - Patagonia.” Www.patagonia.com. 2022. Accessed
August 23, 2022 https://www.patagonia.com/climate-goals/.
[14] © Cara Operations Limited. Used with permission.
[15] Image courtesy of Siqbal at English Wikipedia under Public Domain
[16] Image by Steve Cukrov/Shutterstock.com
[20] Image by Hanson Lu on Unsplash
[21] Image by UK Black Tech on Unsplash
Case Study: Strategy at Loblaw Companies Ltd.
In 1947, the George Weston company purchased Loblaw Groceterias with the objective to
make it Canada's largest national grocery retailer. Early growth for the company was
achieved largely through acquisitions until the 1970s, when it began to differentiate itself
from competitors such as Dominion by selling no name® brand goods. Today, Loblaw
Companies Ltd. (Loblaw) is Canada's largest grocery retailer, and Canada's second-largest
employer. With over 2,400 stores and 200,000 employees across Canada, Loblaw
comprises many grocery businesses including Fortinos, Dominion, Zehrs, Valu-Mart, and
T&T Supermarket, among others. There are just over 1,000 Loblaws branded grocery stores
in Canada. Together, these brands had over 25 percent of the grocery retail market in
Canada in 2020 (Statista 2022).
Loblaw's mission is to help its customers "to live life well" (Loblaw Companies Ltd. 2021,
1). This mission is supported by three underlying priorities: expanding digital retailing,
expanding the value of the PC Optimum loyalty program and PC Financial banking, and
connected health care. Digital retailing includes expanding the retail space beyond the
physical stores to making shopping online seamless in terms of finding choices, having
personal shoppers fulfill customer orders, and providing customers with multiple ways to
either pick up their order or have their order delivered. The PC Optimum program and PC
Financial offer customers ways to increase their shopping benefits by combining services.
When combined, these services provide customer incentives for being loyal with their
shopping dollars. Loblaw owns Shoppers Drug Mart, and has pharmacies located within
many of its Loblaws supermarkets.
Loblaw's vision is to help ensure that Canada is the happiest and healthiest country in the
world. The core values at Loblaw that are intended to realize its mission are to "be
authentic, build trust, and make connections" (Loblaw Companies Ltd. 2021, 6). Within the
Loblaws supermarkets, the value proposition (in other words, the set of attributes that
make Loblaws unique in the eyes of its customers) is to "be best in food, health, and
beauty"(Loblaw Companies Ltd. 2021, 2). This value proposition is implemented by
activities centred around providing fresh food selection; competitive value; a curated
assortment of offerings; and providing high-quality health and wellness products and
services.
Loblaw's goals include focusing on and expanding its digital retail presence. This is a
competitive must-do in the grocery industry, as the pandemic has had a huge influence on
how consumers buy groceries. Supermarket chains are now supplementing in-store
shopping with personal shoppers, online sourcing, and scheduled pickup and delivery.
Other financial, hard goals at the company include ensuring a low-cost operating structure,
and growing same-store sales. Soft goals, which are more focused on how the company
intends to operate in society and with its employees, include increasing its demographic
representation, a zero net carbon emissions goals by 2040, and the goal to inspire systemic
change to reduce plastic waste in society.
The competitive landscape for groceries in Canada has changed dramatically over the past
20 years. As Canada has become more ethnically diverse, grocery stores have responded
by offering increased specialty offerings both within stores and through specialized
supermarkets. For example, T&T Supermarket is a large chain that specializes in Asian
foods, and Adonis Supermarkets focuses on Middle Eastern, Lebanese, and Mediterranean
foods (Adonis Mediterranean Market. n.d.). In addition to greater diversity in product
offerings, supermarkets have also been moving toward offering hot-cooked and ready-toeat meals such as roast chicken, wood-oven pizza, and other dinner-time offerings in order
to appeal to the working family that has to stop for groceries on the way home from work
and provide a family evening meal.
Grocery stores have also segmented customers along lines of luxury versus value. Retail
chains such as No Frills and Food Basics are at the high-value end of the spectrum,
offering the most well-known brands and popular grocery items as well as no-name brand
foods. The luxury end of the spectrum include supermarkets like Whole Foods and
Pusateri's, which offer high-end meats, cheeses, and prepared foods, as well as a broad
selection of organic and vegetarian/vegan choices sourced both locally and from around
the world. Loblaws straddles these two ends of the spectrum by selling no name ® brand,
President's Choice brand, and Blue Menu brand (a nutrition-focused brand that provides
lower-fat, lower-calorie, and/or high-fibre choices) as value-leading options, and also
smaller label options that are both locally and globally sourced. For example, shoppers
looking for a specific brand of almond milk that is ideal for baristas to use for making
cappuccinos and lattes are likely to find it at Whole Foods or at Loblaws. However,
shoppers might have to go to a high-end supermarket like Whole Foods if they are
interested in a dry-aged specialty cut of meat, rare type of cheese, or artisanal bread.
Finally, competition is also coming from the big-box stores such as Walmart and Costco,
which are able to take advantage of their huge global supply chains to bring groceries to
consumers at very competitive prices. The global reach of the big-box stores also enables
them to run specials on seasonal or specialized items, such as mangoes and dried dates.
These items act as drawing cards to bring customers into the store and spend their grocery
dollars.
More information about Loblaw's products, market, and competitors can be found in
its annual financial report.
Case Study Question 1.1
Given the materials in the case, the most recent annual report, and any other relevant
information (such as online news items, etc.), state the mission, vision, and values of
Loblaw.
Case Study Question 1.2
What are the main goals for Loblaws supermarkets?
Case Study Question 1.3
Conduct a SWOT analysis for Loblaw.
Case Study Question 1.4
Describe Loblaw's primary source of competitive advantage. In other words, how does
Loblaw attract customers to spend more at its stores? Can you also describe Loblaw's
value proposition? That is, what are the primary benefits that Loblaw brings to its
customers that encourage customers to shop regularly at its stores?
Case Study Question 1.5
What is Loblaw's competitive position?
Case Study Question 1.6
Given what you know so far about Loblaw and based on your analysis, do you think Loblaw
is well positioned for the future? What could the company do to improve its competitive
position?
References
Adonis Mediterranean Market. n.d. “About Us - Marché Adonis.” www.groupeadonis.ca.
Accessed August 15, 2022. https://www.groupeadonis.ca/en/about-us.
Loblaw Companies Ltd. 2021. “Check out Loblaw Financial Reports.” www.loblaw.ca.
2021. https://www.loblaw.ca/en/investors-reports. 1, 2, 6.
Statista. 2022. “Loblaws: Statistics and Facts.” www.statista.com. March 22, 2022.
https://www.statista.com/topics/3235/loblaws/.
Chapter 2: Aligning HR with Strategy
Figure 2.1 HR programs and policies must be designed to support organizational
strategies. [1]
Learning Outcomes
L.O. 2.1 Recognize that HRM can be defined as a set of policies and practices that guide
and constrain the development of HR practices such as recruitment, selection, and
appraisal.
L.O. 2.2 Describe some of the strategic HRM theories, including the resource-based and
contingency perspectives as well as human capital theory and behavioural theory.
L.O. 2.3 Understand the importance of strategic HR planning.
L.O. 2.4 Discuss approaches to linking strategy and HR, including the barriers to becoming
a strategic partner.
L.O. 2.5 Describe the characteristics of effective HRM strategies, including the concepts of
external and internal fit, and agility.
Introduction
HR Strategy at John Deere & Company
John Deere & Company (with 69,600 employees) is the largest agricultural company in the
world. It sells products (such as tractors and lawn care equipment) and services (repairs)
to customers to meet the world’s need for food, fuel, and shelter (Figure 2.2). The HR
function started trying to become a strategic business partner within the
organization several years ago (like other areas such as marketing and operations). The
function is now a respected strategic partner, participating in all key business decisions.
The function is focused on managing two complex business challenges as John Deere
pursues strategic goals in its three business markets. One key challenge is the cyclical
nature of its industries due to uncontrollable factors such as weather or an abrupt change
in government agricultural policies, such as farming subsidies. HR has been able to help
the business cope with these disruptions by devising short-term solutions while also
planning for medium- and long-term scenarios.
Figure 2.2 John Deere Tractor [2]
A second major challenge is in the talent arena. Because of the global nature of its
businesses, the organization’s talent needs vary. While some are traditional engineering
businesses in agriculture or construction, others lead the way in pioneering technology. For
example, John Deere led the way in technology innovations such as self-driving tractors.
This means that the company is competing for talent with Amazon and other technology
companies. Strategic talent management is therefore critical. To address this labour
shortage, the company has created an internship program to train people in technological
skills like the use of drones.
Another important priority is to outsource HR administrative work. The company has
created a shared services centre in Poland and has a shared services centre in India that
supports multiple countries across Asia.
Sources: John Deere (2022); Cooper and Jackson (2016); Abel et al. (2017)
2.1 Strategic HRM
HRM can be viewed as an umbrella term that encompasses 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 (Jackson
and Schuler 1995, 237–264). 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 (Lawler, Levenson, and Boudreau 2004, 27–36). 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
(Roos, Fernström, and Pike 2004, 28–37). These strategic activities are comprehensive, are
planned, and in their contribution to organizational success are considered high long-term
value-added (Ruona and Gibson 2004, 49–66).
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. Two recent surveys identified building critical skills and competencies of the
workforce that align with the organizational strategy as the top priority (Gartner 2022).
Indeed, one survey found that senior HR leaders are being fired for failing to develop an HR
strategy.(Longenecker, Caldwell, and Ball 2020, 231–242). On the positive side, those
companies that empowered their HR leaders with the title of Chief Human Resources
Officer (CHRO) reported a 30-percent higher total shareholder return (Dixon 2022).
According to surveys, three-quarters of Canadian organizations believe that HR is more
influential now than five years ago; the recognition of HR importance is especially higher
among CEOs and senior managers (about three-quarters believe so) than other managers
(about half) (The Conference Board of Canada 2010).
2.2 Theories of the Strategic Management of Human Resources
HR practitioners themselves do not seem to value theory. HR is seen as theoretical and
problem-driven (Ferris et al. 2004, 231–254). But the field is young, and perspectives are
indeed emerging that can be seen as providing the theoretical underpinnings.
Human resource 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.
Strategic HR researchers and practitioners know that HRM can make strategic
contributions to organizations. Certain “high-performance” HR practices, such as selective
hiring, extensive training, and competitive pay, are considered “best practices, because
they were often found in the most successful organizations (Pfeffer 1995, 55–69).
Accumulated research showed consistent evidence that the implementation of highperformance HR systems significantly predicted various organizational performance
indicators, ranging from reduced employee turnover to improved quality and organizational
performance (Combs et al. 2006, 501–528).
This perspective stimulated a broad implementation of high-performance HR systems 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.
2.2.1 Resource-Based View
The resource-based view was introduced in Chapter 1, Strategic Management, where the
culture of Southwest Airlines was described as a resource that provided a sustained
competitive advantage because it 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 advantage if they meet all four criteria suggested by the resource-based view.
Firstly, employees who have superior performance because of their skills, commitment, or
flexibility are valuable. These employees help the company beat out competitors by
offering better service/unique products or reducing costs.
Secondly, human resources can be difficult for competitors to imitate. Porter estimates
that it takes approximately seven years to duplicate a competitive edge in human
resources (Porter 1985). 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 (Amit and Belcourt 1999, 174–
181).
Thirdly, the best human resources are rare. “Talent war” describes the fierce competition
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 (The
Conference Board of Canada 2010). Video 2.1 describes how American Express recruits
amid a war for talent.
Video 2.1 Talent Wars [3]
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 (Teece 2007, 1319–1350). 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 (Chadwick and
Dabu 2009, 253–272).
Figure 2.3 provides real-world examples of the four criteria suggested by the resourcebased view:
Therefore, a firm’s human resources are more valuable for sustained competitive
advantage than technological and physical resources, particularly in today’s competitive
and fast-changing environment, because human resources are less visible, more complex,
and can initiate change (Paauwe and Boselie 2006, 56–70). For these reasons, human
resources are increasingly perceived as strategic resources. Given the unlimited potential
of human resources, how to exploit it is explained by the contingency perspective.
2.2.2 The Contingency Perspective
In Chapter 1, we learned that business strategies range from low-cost to high
differentiation. Although high-performance HR practices in general contribute to high
performance, 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 The 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 orientation) that
they display to customers (Video 2.2). Such employee differences are largely shaped by the
HR practices in place, and can be explained by the human capital and behavioural
theories.
Video 2.2 Customer Service at The Ritz-Carlton [4]
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, education,
vocational qualifications, professional certifications, work-related experience, and
competence of an organization’s employees (Weatherly 2003). As researchers have noted,
“In the new economic paradigm, as the demands for continuous change make innovation,
adaptability, 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” (Becker and Huselid 1999, 287–301).
From the perspective of human capital, employees are viewed as a capital resource that
requires investment (Hoskisson, Hitt, and Ireland 2004).
Employees are of value to the organization to the extent that they work toward
accomplishing organizational objectives. Costs incurred in training, motivating,
compensating, 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 (Schuler and
Jackson 2005, 11–35). Thus, human capital’s value added can be estimated by:
Total revenue −( operating expenses − total compensation costs ) Total compensation cost
s Total compensation costs Total revenue −( operating expenses − total compensation cos
ts )
Using this formula, it was estimated that the median human capital return on investment
for Canadian organizations was two dollars and twenty-six cents in 2010, meaning that
each dollar organizations invested in human capital generated two dollars and twenty-six
cents in return (The Conference Board of Canada 2010).
It is estimated that human capital and non-financial value drivers explain up to 85 percent
of “intangible" value. (Dixon 2022). 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-provider 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
(Wright et al. 1995, 1052–1074). Organizations that compete on service excellence, for
example, would invest in service-related human capital. Banks that invest in HR systems
for service quality, such as selecting, training, and rewarding employees’ service-related
skills, have superior service-related human capital and subsequently higher customer
evaluation of service quality (Liao et al. 2009, 371–391). 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. Similarly, without the right
HR systems, employees are less effective. Learn how Apple has established delivery of
superior customer service in Video 2.3.
Video 2.3 Customer Service at Apple [5]
Behavioural Theory
Figure 2.4 Employees Working Outdoors at Googleplex Headquarters Main Office [6]
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 (Figure 2.4)? 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 understanding 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 (Malley and Lawler
2003, 33–38). 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 (Schuler and Jackson 2005, 11–35). In
general, researchers consider performance appraisal, pay for performance, incentive
plans, and developmental and advancement opportunities to enhance employee
motivation to exhibit desired behaviours. Concomitantly, practices such as employee
involvement, participation in decision-making, voice and grievance, performance
feedback, teamwork, and job enrichment provide opportunities for employees to exhibit
desired behaviours. Both practice bundles have shown significant impact on organizational
outcomes (Subramony 2009, 745–768).
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 organization’s culture and
traditions.
In summary, the purpose of HR practices is to shape employee behaviour. Different
competitive strategies require different employee role behaviours and different HR
practices produce this behaviour (Storey, Wright, and Ulrich 2019, 10–45). We will discuss
the alignment of HR system with business strategy in more detail later in the chapter.
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 (Ulrich and Smallwood 2004, 119–127).
2.2.3 Strategic HR Planning: A Continuum of Options
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. 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 organization
was concerned only with possible problems of labour surpluses and shortages (Figure 2.5).
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 (Zedeck and Cascio 1984, 461–518). This
is now regarded as a narrow, linear approach to HR planning.
Figure 2.5 There are labour shortages of professional employees. [7]
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 2.6. 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, and
restructuring has affected our view of employees profoundly and highlighted the need for
the input of HR professionals in formulating policy.
2.3 The Importance of Strategic HR Planning
The Conference Board of Canada reports that executives have identified HR planning as
the most important long-term HR priority for Canadian organizations (The Conference
Board of Canada 2017, 65). 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 corporate 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 reasons strategic HR planning is so important:
1. Employees help an organization achieve success because they are strategic
resources.
2. The planning process itself results in improved goal attainment.
2.3.1 Employees Are a Strategic Resource
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 innovative, 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 (Schuler and Jackson 1989, 89–99). 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.
2.3.2 Improved Goal Attainment
Strategic HRM can improve an organization’s performance. The goals of 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 (King
1995, 143–160).
Only one-third of Canadian executives state that their strategies are supported by a
workforce plan (Cooper and Jackson 2017). But what makes HR planning so difficult?
Again, the survey from The Conference Board of Canada provides some insights (Table 2.1).
Table 2.1 Barriers to Workforce Planning (The Conference Board of Canada 2017,
65)
Practical Barriers
Perception and Attitude
Barriers
Leaders lack planning and business acumen
Seen as important, but not
urgent
Multiple planning horizons
Lack of holistic approach
Organizational silos
It is hard to measure success
Moving targets – business goals are not clear
Seen as too daunting to change
Union restrictions, and barriers to internal
employee mobility
Resistance to change: "We
always got by in the past"
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”
To summarize, strategy formulation is important to the attainment of organizational goals in
order to align all HR functional strategies with overall strategy and to focus employees on
the 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.”
This ad hoc approach can result in waste, inconsistencies, and short-term thinking, which
can be costly. For example, an organization may lay off employees because of a decline in
sales, only to face recruitment problems when the economy rebounds. A "strategy" like this
is considered rudderless and indeed is not a strategy (Storey, Wright, and Ulrich 2019, 10–
45).
2.4 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
implications of adopting a strategy. What are the internal and external constraints and
opportunities? 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 (Lengnick-Hall and Lengnick-Hall 1990).
While HR strategy can be linked to business life cycle (for example, a start-up business
requires different HR practices than a growing or mature business) (Storey, Wright, and
Ulrich 2019, 10–45), our focus is on linking HR strategy with business strategy. This does
not happen as frequently as it should.
Aligning HR strategy with business strategy can be done in one of the following 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. Apply a combination of both in a form of reciprocal relationship.
Let us examine each approach.
2.4.1 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 2.4.1 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 2.4.1 provides one
of the few “recipes” for using HR strategies to support a business strategy.
HR Planning Today 2.4.1: 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 marketplace. 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 lowcost 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 co-operative or interdependent 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 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 refer to six HR functions that will facilitate the personnel work at a low-costprovider organization.
•
Function 1: HR Planning At the entry level, succession planning is minimal,
ensuring only the feeder line to the next level. Outside labour markets 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.
•
Function 2: 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 online
applications. Most other positions are staffed internally through promotions. Thus,
career paths are narrow.
•
Function 3: Compensation A low-cost-provider strategy includes lower wages and
fringe benefits. Beyond the legal minimum pay requirements, firms with this strategy
carefully monitor what their competitors are paying in the local labour market. The
strategy of these firms tends to be a lag strategy, where they attempt to pay wages
slightly below industry norms.
o
One way of achieving these lower costs is to outsource 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 that pay employees substantially less
for similar productivity. Outsourcing has also meant moving the work from
highly unionized plants, where workers make 20 dollars or more per hour, to
non-unionized, smaller sites, where workers are paid slightly more than the
minimum wage.
o
Cost reduction in wages can also be achieved through the use of part-time
workers, who receive no fringe benefits. Canadian organizations pay around
30 percent in fringe benefits, so the savings gained by using part-time
workers is substantial among large employers. Fast-food franchises employ
part-time workers almost exclusively to reduce labour costs.
o
Pay for performance, such as incentive compensation that is linked to
productivity, rewards individual effort. Group rewards are based on explicit,
results-oriented criteria and the meeting of short-term performance goals.
o
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 operating
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.
McDonald's plan to raise wages is described in Video 2.4. What could this mean for
franchisees and investors?
Video 2.4 Wage Increases at McDonald's [8]
•
Function 4: 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
hamburger 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 are so narrow in scope, so repetitive in nature, that little need for training exists.
•
Function 5: 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 those of the team or the company. Only the
supervisor provides 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.
•
Function 6: 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 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. Starbucks employees' push for unionization is highlighted in Video 2.5.
Video 2.5 Labour Fight at Starbucks [9]
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
Figure 2.7 Rolex competes on a differentiation strategy. [10]
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 competing on the basis of a differentiation
strategy will offer something unique and valuable to its customers. BMW, Polo Ralph
Lauren, Rolex (as shown in Figure 2.7), 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 proprietary technology and superior customer service, thus providing 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 fundamentally 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, as well as an
ability to work in an ambiguous and unpredictable 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.
•
Function 1: 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. 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.
o
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.
•
Function 2: 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, be
flexible in work attitudes, and 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.
•
Function 3: Compensation Compensation plans affect employee behaviour more
directly than most HR practices. Compensation is carefully designed in firms that
have a differentiation strategy. Pay rates may be slightly below average market rates,
but there are substantial 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 individual, group, and corporate results. These results are a
combination of process and financial criteria and are set in advance, usually on a
yearly basis. 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; non-monetary rewards
play a larger role in HR strategy in these types of firms.
o
Drucker (2002) describes a compensation scheme 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 at GE postponed spending on innovation.
o
At Honda, the team that designs a unique transportation vehicle is awarded a
trip to Japan.
•
Function 4: 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 recognized and encouraged. Employees receive promotions or other job
opportunities based, partially, on their willingness to undertake training and their
track record in learning.
•
Function 5: Performance Evaluation In companies with a differentiation strategy,
performance appraisal is based not on short-term results but instead on the longterm 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, 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. Evaluation tends to be based on a mixture of individual 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 established quotas, and the company
might be measured in terms of its overall financial performance. Appraisals that
include input from employees, functional experts, peers, and so on (360-degree
evaluations) are the norm. Organizations in the service sector are more likely to
include customers as sources of input for performance appraisal.
•
Function 6: 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: Schuler and Jackson (1987, 207–219); Ulrich in Kilman and Kilman (1991);
Drucker (2002, 70–77); Belcourt and Thornhill (1999)
But another perspective reverses this view, suggesting that employee competencies
determine the business strategy.
2.4.2 HR Competencies Lead to Business Strategy
A competing view states that an organization cannot implement a strategy if it does not
have the necessary human resources. Currently, companies are scrambling to find
qualified workers in many fields, as discussed in Chapter 6, Ascertaining HR 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 organizational
strategy and HR practices. The reality is closer to the concept of reciprocal
interdependencies (Anderson 1997, 17–22).
In Video 2.6, learn how employees influence the ability of a firm to realize its strategy.
Video 2.6 Employees Influence Strategy [11]
2.4.3 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 (Lengnick-Hall and Lengnick-Hall 1990).
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 (Bamberger and Feigenbaum
1996, 926–958).
2.4.4 HR Becomes a Business Partner
The key point here is the concept of concurrent strategy formulation. Strategy development
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 non-profit 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 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 successfully lobby
the government to support two major contracts, using the employees’ unique
competencies (Wright, Snell, and Jacobsen 2004, 36–47).
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.
As shown in Video 2.7, robots can replace employees whose work is repetitive and simple,
however there are new roles for HR as business partners to assess the skills needed to
manage the robots.
Video 2.7 Robots in the Workforce [12]
HR professionals recognize the need to play a more strategic role within the organization.
According to a report from Gartner, three-quarters of CHROs expect their HR business
partners to be actively strategic, but unfortunately, less than a fifth achieve this (Human
Resources Director (HRD) 2019).
HR has to become a business partner. HR Planning Today 2.4.2 describes what an HR
business partner is.
HR Planning Today 2.4.2: What Is an HRBP?
An HR business partner (HRBP) is a member of the HR team who is assigned to represent
human resources in specific business units, working directly with the leadership of the
units in a consulting and coaching role. They ensure that the people-related strategies and
programs of the broader organization align with the objectives of the business unit. HRBPs
act as brokers between the business unit and other HR functions—such as core HR,
centres of expertise, and shared service centres—to tailor the design and implementation
of HR programs and services to best serve the operational needs of the business unit. At
the same time, HRBPs coach business unit leaders on how to get the most value out of
their teams while aligning to programmatic and cultural norms.
The HRBP role is designed to be HR’s one-stop shop or single point of contact in the
business unit, ensuring an effective two-way flow of information and services between HR
and the business.
Source: Cooper and Jackson (2016)
Surveys from the United Kingdom and the United States report little evidence of a strategic
role for HR (Storey, Wright, and Ulrich 2019, 10–45). 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?” (The Economist 2012). Boards of
directors are demanding that HR departments provide them with information outlining the
links between strategy and workforce implications (HRPA/Knightsbridge 2011).
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 2.4.1 poses the
question: Are you a strategic partner?
HR Planning Notebook 2.4.1 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 technological 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.
2.4.5 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,
compensation, and so on). However, there are some more innovative practices, where the
unit is organized according to the services provided.
Many organizations have adopted a newer model of HR structure as depicted in Figure
2.8. The “matrix HR model” or “shared services model,” proposed by Ulrich and
Grochowski (2012, 136–142), encompasses four distinct HR roles:
Figure 2.8 Matrix HR Model (Ulrich and Grochowski 2012, 136–142)
2.4.6 HR Strategy Differentiation
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?
Different divisions need different strategies.
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, a large manufacturer might implement an
HR strategy of average market compensation with bonuses for quality and productivity for
factory workers in its manufacturing division. However, for its research scientists who are
developing new products and processes, the HR strategy might include above-average
compensation, coupled with incentives to experiment and profit sharing for ideas that
worked.
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 that (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 (Schneider and Paul 2011, 40–43).
For example, in Big Pharma, the strategic capability of the business is new product
development, thus the research and development (R&D) scientists would assume the
most strategic role. Walmart’s strategic capability is its distribution and logistics systems,
and as these allow it to achieve high efficiency at low costs, 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 (Becker, Huselid, and Beatty 2009; Huselid, Beatty,
and Becker 2005, 110–117).
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) (Becker, Huselid,
and Beatty 2009; Huselid, Beatty, and Becker 2005, 110–117). 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.
Human capital has been found to be significantly related to organizational performance,
particularly when the human capital is unique to the organization (Lepak and Snell 1999,
31–48). The basic prescription is to design HR programs that support the business strategy.
HR Planning Today 2.4.3 illustrates how Canadian companies are differentiating talent.
HR Planning Today 2.4.3: How Canadian Companies Differentiate Talent
The Conference Board of Canada (2017, 65) found that employers are segmenting workers
by the following 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: highly skilled, highly trained individuals who drive organizational value
•
Key job family positions: workers who are well trained on core organizational
processes, but are more easily replaced
•
Contingent labour: temporary, demand-based, and project-based workers
2.5 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 (Crook et al.
2011, 443–456). Effective HRM strategies include external and internal fit, and a focus on
results. Agility is becoming increasingly important in a turbulent environment.
Fit is an important consideration when designing HR programs. We will examine two
important types of fit: external fit and internal fit.
2.5.1 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 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.
2.5.2 Internal Fit
We refer to 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 differentials for
shift work, the overall marketing strategy might fail (Figure 2.9).
Figure 2.9 These workers are trained to provide excellent customer service in support of a
marketing promise of 24-hour support. [13]
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. Bundles
of HR practices have a greater than the effect of individual HR practices. Therefore you
cannot separate the HR function into sub-functions each staffed by specialists; the
functions have to be mutually reinforcing (Storey, Wright, and Ulrich 2019, 10–45).
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 (Cooke and Armstrong 1990, 30–33). If an organization
adopts one best practice, such as structured interviewing, without adopting bundled 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 (Buyens and de Vos
2001, 70–89).
2.5.3 Agility
People have criticized the concept of fit as being too rigid. CEOs want HR to deliver a highperformance, agile culture (Holbeche 2022, 14–20). An emerging trend in HR practice is the
concept of agility.
An agile organization has a set of values and methodology that emphasize a continuous
process of experimentation, feedback, and improvement to maximize customer value. HR
is not static (Devine and McMackin 2021). Fit may be the opposite and may undermine
flexibility. Somehow there needs to be a tight fit between business and HR strategies, but
there is also a need to be fluid to adapt to changing circumstances. Think of this as
evolutionary HR; sensing and responding to changes so that HR practices align
with changing organizational needs and circumstances (McMackin and Heffernan, 2021,
100791; Snell and Morris 2021, 219–236).
Agile projects are generally broken into "sprints" which emphasise the rapid delivery of
elements of a solution that can be tested in collaboration with customer(s). Agile
management reflects a belief that if you are going to fail, then you should fail fast and at a
relatively small scale (an element rather than the overall deliverable). Each sprint has a
defined duration (usually in weeks) with changing requirements and participants, planned
at the start of the sprint by an empowered cross functional team. In a corporate HR context,
this might mean shifting from a centralized redesign and global relaunch of a performance
management process, to collaborating with business on a number of local pilots of
redesigned processes, then gathering feedback from stakeholders (also known as
constituent groups) to identify the best solution(s) (McMackin and Heffernan 2021,
100791).
2.5.4 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, HR Assessment and Analytics, 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, depicted in Figure
2.10, needs to be developed.
Figure 2.10 Chain of HR Program Development
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.
Figure 2.11 provides a summary of Chapters 1 and 2, illustrating how business strategy and
organizational strategy are combined.
Figure 2.11 Linking HR Process to Strategy (Belcourt et al 2020, 42)Long Text Description
Summary
L.O. 2.1 Strategic HRM is a set of distinct but interrelated philosophies, policies, and
practices with the goal of enabling the organization to achieve its strategy. The goal is to
attract, develop, motivate, and retain employees who will work to ensure that the
organization not only survives, but thrives.
L.O. 2.2 HR strategy is embedded in theories of the resource-based view of the firm, and
contingency perspectives including the behavioural perspective, and the human capital
approach. HRM began as an administrative function and has traditionally been associated
with organizational costs. In successful organizations, certain "high-performance" HR
practices, such as selective hiring and extensive training, are considered "best practices."
The implementation of high-performance HR systems has predicted various organizational
performance indicators significantly.
L.O. 2.3 HR planning has been identified by executives as the most important long-term HR
priority for organizations. HR must focus on scoring points rather than on coaching,
training, or counting the number of players. HR's value will be demonstrated by its ability to
deliver the behaviours required to enable the organization's strategy.
L.O. 2.4 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.
L.O. 2.5 Aligning HR strategy with the corporate strategy (external fit) and with other
functional strategies (internal fit) is important to the achievement of results. Agility is an
increasingly important HR component of meeting strategic goals.
Glossary
Concurrent strategy Strategy development is conducted at the same time that HR issues
are considered.
Human capital The sum of employees’ knowledge, skills, experience, and commitment
invested in the organization.
Strategic HRM Human resource management issues, functions, policies, and practices
that result from the strategic activities of multinational enterprises and that affect the
international concerns and goals of those enterprises.
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.
Tennis:
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 earlier. First, Tennis Canada built two
excellent tournament facilities: the Rexall Centre in Toronto and the Uniprix Stadium in
Montreal, generating more revenue and more sponsorships. Money available for player
(talent) development soared from 4 million dollars to 12 million dollars. 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 demonstrated exceptional skills and motivation, who went to school in the morning
and then spent five hours training in the afternoon. They were supported extensively, with
coaching sessions in Europe, and travelled to tournaments around the world. And this new
plan worked! The original goal was to have at least one player in the top 100; then, when
this was achieved, the top 50. And now (2022), Canada has five players in the top 20.
Check out the new talent emerging from this pipeline and making headlines in Canada at
the Tennis Canada website.
Baseball:
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 performance statistics (such as batting averages, earned run averages,
bunting, stealing, getting on base, etc.) and links these to winning scores. These findings
were not accepted until Billy Beane of the Oakland Athletics put Sabermetrics into
practise. Refer to the biographical sports movie Moneyball (2011) and learn about this
approach.
References
Abel, A. L., M. Devine, S. Nair, and L. Yorks. 2017. "What's Next for 21st-Century HR? Deere
& Company: Using Data to Accelerate HR Transformation." The Conference
Board. (December). Accessed July 23, 2022. https://www.conference-board.org/topics/hrtransformation/John-Deere-HR-Analytics.
Amit, R. and M. Belcourt. 1999. “Human Resources Processes as a Source of Competitive
Advantage.” European Management Journal 17, no. 2 (April): 174–181.
Anderson, W. 1997. “The Future of Human Resources: Forging Ahead or Falling
Behind?” Human Resources Management 36 (1): 17–22.
https://doi.org/10.1002/(SICI)1099-050X(199721)36:1<17::AID-HRM5>3.0.CO;2-Z.
Bamberger, P. and A. Feigenbaum. 1996. “The Role of Strategic Reference Points in
Explaining the Nature and Consequences of Human Resources Strategy.” Academy of
Management Review 21 (4): 926–958. https://doi.org/10.2307/259159.
Becker, B.E. and M.A. Huselid. 1999. “Overview: Strategic Human Resources Management
in Five Leading Firms.” Human Resource Management 38 (4): 287–301.
Becker, B.E., M. A. Huselid, and R. W. Beatty. 2009. The Differentiated Workforce:
Translating Talent into Strategic Action. Boston: Harvard Business Press.
Belcourt, M. and S. Thornhill. 1999. “Growing from the Inside Out: Human Resources
Practices for Growth Strategies,” Proceedings of the Administrative Sciences Association of
Canada.
Belcourt, M., P. Singh, S. Snell, and S. Morris. 2020. Managing Human Resources, 9th
Canadian ed. Toronto: Nelson Education Ltd., 42.
Buyens, D. and A. de Vos. 2001. “Perceptions of the Value of the HR Function.” Human
Resource Management Journal 11 (3): 70–89. https://doi.org/10.1111/j.17488583.2001.tb00046.x.
Chadwick, C. and A. Dabu. 2009. “Human Resources, Human Resource Management, and
the Competitive Advantage of Firms: Toward a More Comprehensive Model of Causal
Linkages.” Organization Science 20 (1): 253–272. http://www.jstor.org/stable/25614652.
Combs, J., Y. Liu, A. Hall, and D. Ketchen. 2006. “How Much Do High Performance Work
Practices Matter? A Meta-analysis of Their Effects on Organizational
Performance.” Personnel Psychology 59 (3): 501–528. https://doi.org/10.1111/j.17446570.2006.00045.x.
Cooke, R. and M. Armstrong. 1990. “The Search for Strategic HR.” Personnel
Management (December): 30–33.
Cooper, J. and S. Jackson. 2016. “The Human Resources Business Partner: Supporting
Strategic Transitions in Canadian HR.” Ottawa: The Conference Board of Canada. Accessed
August 13, 2022. https://www.conferenceboard.ca/e-library/abstract.aspx?did=8312.
Cooper, J. and S. Jackson. 2017. “Workforce Planning Practices in Canada: Human
Resources Trends and Metrics, Fourth Edition.” Ottawa: The Conference Board of Canada.
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 96 (3): 443–456.
https://doi.org/10.1037/a0022147.
Devine, M. and J. McMackin. 2021. "Building an Agile HR Function: Four Pathways to
Success." The Conference Board, December 15, 2021. https://www.conferenceboard.org/topics/next-generation-HR/building-an-agile-HR-function.
Dixon, B. 2022. “Why Is the Prevalence of CHROs as Named Executive Officers on the
Rise?” HR Strategy and Planning Excellence, May 11, 2022, Accessed August 11, 2022.
www.pearlmeyer.com/knowledge-share/article/why-is-the-prevalence-of-chros-asnamed-executive-officers-on-the-rise.
Drucker, P. F. 2002. “They’re Not Employees, They’re People,” Harvard Business Review 80
(2): 70–77. PMID: 11894680.
Ferris, G., A. T. Hall, T. Royle, and J. J. Martocchio. 2004. “Theoretical Development in the
Field of Human Resources Management: Issues and Challenges for the
Future.” Organizational Analysis 12 (3): 231–254. ISSN: 15517470.
Gartner. 2022. “Top 5 HR Trends and Priorities for HR Leaders in 2022.” Accessed August
11, 2022. https://www.gartner.ca/en/human-resources/trends/top-priorities-for-hrleaders.
Holbeche, L. 2022. Aligning Human Resource and Business Strategy, 3rd ed. Rutledge. 14–
20.
Hoskisson, R.E., M.A. Hitt, and D. Ireland. 2004. Competing for Advantage. Mason, OH:
Thomson South-Western.
HRPA/Knightsbridge. 2011. “The Role and Future of HR: The CEO’s Perspective.” 2011
Research Highlights.
Human Resources Director (HRD). 2019. "5 ways HR can become a strategic business
partner." Human Resources Director. Accessed June 29,
2022.https://www.hcamag.com/ca/specialization/learning-development/5-ways-hr-canbecome-a-strategic-business-partner/179669.
Huselid, M.A., R.W. Beatty, and B.E. Becker. 2005. “‘A’ Players or ‘A’ Positions? The Strategic
Logic of Workforce Management.” Harvard Business Review 83 (12): 110–117.
Jackson, S.E. and R.S. Schuler. 1995. “Understanding Human Resource Management in the
Context of Organizations and Their Environments.” Annual Review of Psychology 46 (1):
237–264. https://doi.org/10.1146/annurev.ps.46.020195.001321.
John Deere. 2022. John Deere: 2020 Sustainability Report. Accessed August 15, 2022.
https://www.deere.com/assets/pdfs/common/our-company/sustainability/sustainabilityreport-2020.pdf.
King, A.S. 1995. "Multiphase progression of organizational ideology and commitment." The
Mid-Atlantic Journal of Business 31 (2): 143–160.
Lawler, E.E., A.R. Levenson, and J.W. Boudreau. 2004. “HR Metrics and Analytics: Use and
Impact.” Human Resource Planning 27 (4): 27–36.
Lengnick-Hall, C. and M. Lengnick-Hall. 1990. "Interactive Human Resource Management
and Strategic Planning." New York: Quorum Books.
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 24 (1): 31–
48. https://doi.org/10.5465/amr.1999.1580439.
Liao, H., K. Toya, D. P. Lepak, and Y. Hong. 2009. "Do they see eye to eye? Management and
employee perspectives of high-performance work systems and influence processes on
service quality." Journal of Applied Psychology 94 (2): 371–391.
https://doi.org/10.1037/a0013504.
Longenecker, C., S. Caldwell, and D. Ball. 2020. "Why senior HR leaders get fired: Voices
from the C-suite." Strategic HR Review 19 (5): 231–242. https://doi.org/10.1108/shr-052020-0051.
Malley, M. and E. Lawler. 2003. “What Is HR Good for Anyway?” Across the Board 40 (4): 33–
38.
McMackin, J. and M. Heffernan. 2021. "Agile for HR: Fine in practice, but will it work in
theory?" Human Resource Management Review 31 (4): 100791.
https://doi.org/10.1016/j.hrmr.2020.100791.
Paauwe, J. and P. Boselie. 2006. “Challenging ‘Strategic HRM’ and the Relevance of the
Institutional Setting.” Human Resource Management Journal 13 (3): 56–70.
https://doi.org/10.1111/j.1748-8583.2003.tb00098.x.
Pfeffer, J. 1995. “Producing Sustainable Competitive Advantage through the Effective
Management of People.” Academy of Management Perspectives 9 (1): 55–69.
https://doi.org/10.5465/ame.1995.9503133495.
Porter, M. E. 1985. Competitive Advantage, New York, Free Press. p. 89.
Roos, G., L. Fernström, and S. Pike. 2004. “Human Resource Management and Business
Performance Measurement.” Measuring Business Excellence 8 (1): 28–37.
https://doi.org/10.1108/13683040410524711.
Ruona, W.E.A. and S.K. Gibson. 2004. “The Making of Twenty-First Century HR: An Analysis
of the Convergence of HRM, HRD and OD.” Human Resource Management 42 (1): 49–66.
https://doi.org/10.1002/hrm.20002.
Schneider, B. and K. B. Paul. 2011. “In the Company We Trust.” HR Magazine 56 (1): 40–43.
Schuler, R.S., and S.E. Jackson. 1987. “Linking Competitive Strategies with Human
Resource Management Practices,” Academy of Management Executive 1 (3): 207–219.
https://www.jstor.org/stable/4164753.
Schuler, R.S., and S.E. Jackson. 1989. “Determinants of Human Resource Management
Priorities and Implications for Industrial Relations.” Journal of Management 15 (1): 89–99.
https://doi.org/10.1177/014920638901500108.
Schuler, R.S., and S.E. Jackson. 2005. “A Quarter-Century Review of Human Resource
Management in the U.S.: The Growth in Importance of the International
Perspective.” Management Revue 16 (1): 11–35. www.jstor.org/stable/41782023.
Snell, S., and S.S. Morris. 2021. "Time for realignment: The HR Ecosystem." Academy of
Management Perspectives 35 (2): 219–236 .https://doi.org/10.5465/amp.2018.0069.
Storey, J., P.M. Wright, and D. Ulrich. 2019. Strategic Human Resources Management.
London: Routledge, 10-45.
Subramony, M. 2009. “A Meta-analytic Investigation of the Relationship Between HRM
Bundles and Firm Performance.” Human Resource Management 48 (5): 745–768.
https://doi.org/10.1002/hrm.20315.
Teece, D.J. 2007. “Explicating Dynamic Capabilities: The Nature and Microfoundations of
(Sustainable) Enterprise Performance.” Strategic Management Journal 28 (13): 1319–1350.
https://doi.org/10.1002/smj.640
The Conference Board of Canada. 2010. “Valuing Your Talent: Human Resources Trends
and Metrics.” The Conference Board of Canada.
The Conference Board of Canada. 2017. "HR Talent Management Benchmarking: Human
Resources Trends and Metrics." The Conference Board of Canada, 4th ed., 65.
The Economist. 2012. “CFO Perspectives: How HR Can Take on a Bigger Role in Driving
Growth.” Economist Intelligence Unit. Accessed August 13, 2022.
http://www.hrmaturity.com/wp-content/uploads/2013/02/eiu-ibm-oracle-cfo-report1877303.pdf.
Ulrich, D. 1991. “Using Human Resources for Competitive Advantage,” in R.H. Kilman and I.
Kilman, eds., Making Organizations Competitive, San Francisco: Jossey Bass.
Ulrich, D. and N. Smallwood. 2004. “Capitalizing on Capabilities.” Harvard Business
Review 82 (6): 119–127.
Ulrich, D. and J. Grochowski. 2012. "From Shared Services to Professional
Services." Strategic HR Review 11 (3): 136–142.
https://doi.org/10.1108/14754391211216850.
Weatherly, L. 2003. “Human Capital: The Elusive Asset.” SHRM Research Quarterly (Society
for Human Resources Management).
Wright, P. M., D. L. Smart, and G. C. McMahan. 1995. “Matches between Human Resources
and Strategy among NCAA Basketball Teams.” Academy of Management Journal 38 (4):
1052–1074. http://dx.doi.org/10.2307/256620.
Wright, P. M., S. S. Snell, and P. H. Jacobsen. 2004. “Current Approaches to HR Strategies:
Inside-Out Versus Outside-In.” Human Resource Planning 27 (4): 36–47.
Zedeck, S. and W.F. Cascio. 1984. “Psychological Issues in Personnel Decisions.” Annual
Review of Psychology 35 (1): 461–518.
https://doi.org/10.1146/annurev.ps.35.020184.002333.
Credits
[1] Image by StockSnap from Pixabay
[2] Image by Randy Fath on Unsplash
[3] Video by Yahoo Finance/YouTube
[4] Video by Yahoo Finance/YouTube
[5] Video by Insider Business/YouTube
[6] Image by Anton Gvozdikov/Shutterstock.com
[7] Image by Arlington Research on Unsplash
[8] Video by Yahoo Finance/YouTube
[9] Video by Yahoo Finance/YouTube
[10] Image by pio3/Shutterstock.com
[11] Video by CBC News/YouTube
[12] Video by CBC News: The National/YouTube
[13] Image by MART PRODUCTION CC0
Case Study: Human Capital Strategy at Loblaw
In the Chapter 1 case, we learned that Loblaw Companies Ltd. (Loblaw)'s vision is to help
ensure that Canada is the happiest and healthiest country in the world. We also learned
that the core values at Loblaw are to "be authentic, build trust, and make connections"
(Loblaw Companies Ltd. 2021, 6) and that its value proposition is to "be best in food,
health, and beauty" (Loblaw Companies Ltd. 2021, 2). This value proposition, which is
intended to communicate what Loblaw's unique features are that draw customers to shop
at its supermarkets rather than any other, is implemented by activities centred around
providing fresh food selection; competitive value; a curated assortment of offerings; and
providing high-quality health and wellness products and services. It is also clear from
Loblaw's annual report that a central component of the mission at Loblaw is to focus on
everyday digital retail. This means that it is committed to expanding customers' ability to
shop from an Internet-connected device.
The grocery business has seen broad changes over the course of the COVID-19 pandemic.
As restaurants closed their doors to all but take-out orders, grocery store revenues
increased by approximately 10 percent overall. However, those increased revenues were
offset in the early months of the pandemic by increased expenses in extra pay for essential
workers as well as increased investments in e-shopping (online shopping and delivery). It is
estimated that up to 40 percent of the foot traffic formerly seen in the physical stores has
shifted to online shopping and delivery. According to the Toronto Star, just 1 percent of
grocery shoppers were buying their groceries online prior to the pandemic, but that number
has increased 300 percent since the start of the pandemic. It will be interesting to see the
extent to which customers return to in-store grocery shopping. Furthermore, the items that
grocery shoppers are buying has shifted. More shoppers are looking for fresh foods
(perishables) rather than canned, boxed, and frozen foods (Hudson 2020).
The larger grocers moved quickly to develop an online presence where shoppers can
browse the contents of the various sections of the store to fill an online grocery cart. After
check-out, shoppers either drive to curbside pickup for collecting their order or wait for
home delivery.
All this upheaval in the grocery business has caused a great deal of uncertainty. Grocers
like Loblaw have attempted to compete with the largest retailers, such as Walmart, by
creating superstores that carry not just groceries, but beer, pharmaceuticals, kitchen and
home supplies, and even clothing. With its investment in infrastructure, Loblaw's transition
to online not surprisingly involved keeping its stores open as much as possible, and using
employees as shoppers to fulfil online orders.
Sobeys, on the other hand, used the societal change to at-home shopping and delivery to
invest significantly in its automated inventory and home delivery systems. This has caused
a shift in capital costs away from in-store employees, such as inventory workers and
cashiers, to warehouse robots, computer systems to manage ordering and inventory, and
delivery drivers.
In partnership with digital retail is the pickup and delivery component for groceries, and
Loblaws supermarkets are working on expanding their efforts to make both options simple
for their customers. The parent company Loblaw points to the fact that 90 percent of
Canadians live within 10 kilometres of one of its stores, which means that the company is
extremely well-positioned to make use of customer pickup and delivery options for fast and
easy service (Loblaw Companies Ltd. 2021).
Case Study Question 2.1
According to the resource-based view, firm resources are sources of competitive
advantage, especially when they are combined in unique ways that reinforce the benefits of
other resources. Firm resources can include physical assets such as plant, property, and
equipment, and they can also include capabilities. What are some examples of firm
resources at Loblaw that could be part of its competitive advantage?
Case Study Question 2.2
A value proposition is effective only when it brings value to the customer. In order to bring
value to the customer, the firm must perform certain actions, or tasks, to bring about these
benefits. What are some of the tasks that Loblaw does in order to implement its value
proposition (recall Loblaw's value proposition from the case in Chapter 1)?
Case Study Question 2.3
What are some of the human capital competencies that are required to implement the
tasks listed in Case Study Question 2.2? Create a table that connects each organizational
strategic task required to implement the value proposition to the human capital
competencies that are needed to perform those tasks.
Case Study Question 2.4
What are some HR practices and/or policies that could be developed to obtain and
reinforce those human capital competencies?
References
Hudson, K. 2020. “Sponsored | How Robots Are Making Grocery Delivery Fresh and
Reliable.” Thestar.com. July 16, 2020.
https://www.thestar.com/sponsored_sections/2020/07/17/how-robots-are-makinggrocery-delivery-fresh-and-reliable.html.
Loblaw Companies Ltd. 2021. “Check out Loblaw Financial Reports.” www.loblaw.ca.
2021. https://www.loblaw.ca/en/investors-reports. 2, 6.
Chapter 3: Environmental Influences on HRM
Figure 3.1 The use of technology in the workplace is a dominant trend. [1]
Learning Outcomes
L.O. 3.1 Identify the sources that HR planners use to keep current with business and HR
trends.
L.O. 3.2 Understand how environmental scanning is practised.
L.O. 3.3 Discuss the various challenges in scanning the environment.
L.O. 3.4 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.
L.O. 3.5 Describe the role of constituent groups, and list several examples.
L.O. 3.6 Understand why HR professionals need to assess the importance and severity of
the trends and respond proactively.
Introduction
Environmental Scanning at General Motors (GM)
General Motors (GM) was, for some business experts, associated with the birth of
American capitalism. Back in 1955, the chairman of GM conceitedly stated, “What is good
for General Motors is good for America.” But in 2009, GM filed for bankruptcy and then was
revitalized through 50 billion dollars in government bailout funds (The Economist 2010).
How is it possible that a corporation with money and expertise ended up with just 22
percent market share in 2022, from a position of 50 percent market share 50 years earlier
(GM Investor 2022)?
Some experts feel that the failure was the myopic views held by management. GM’s
managers had difficulty adjusting 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. Now it plans to end the production of vehicles
using internal combustion engines, and offer flexible fuel vehicles, including electric cars.
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 it 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” in the final product. It
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, then 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 benefits 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 1,400 dollars 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.
Figure 3.2 Organizations have survived by constantly adapting to environmental trends. [2]
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. Entrepreneurial ideas have emerged from those outside the auto industry—
those who are scanning the environment, reading the trends, and responding innovatively
(Figure 3.2). Tesla, now the world's most valuable automotive company with 99,290
employees (Tesla 2021), only began production of cars in 2008, and it sees itself as a
technology company, not a car company (Klebnikov 2020).
As explained in Video 3.1, GM's goal is to go all-electric by 2035, phase out gas and diesel
engines by 2040, and be completely carbon neutral by 2040.
Video 3.1 Becoming Carbon Neutral at GM [3]
Sources: Taylor III (2008); Enright (2008); Gurdus (2017)
3.1 Environmental Scanning
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 the following events: the 2017 harassment scandals, the 2014 rise of terrorism, the
2013 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 COVID19, most large organizations now have emergency plans in place for the safety of their
employees and buildings (Figure 3.3).
Figure 3.3 The pandemic had a major impact on the way in which people interact at work.
[4]
HR strategists need information about their environment 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 different extent. The opening vignette
shows that gas prices and the 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 environmental changes is not
only the responsibility of general managers, 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 (Young 2010, 24–28). 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.
3.1.1 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
culture in which they operate. A manager in Vancouver will treat their 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 the industrial
environment, such as that considered in Porter’s Five Competitive Forces (Porter 2008). HR
practitioners who understand the competitive environment and its implications for their
organizations can then develop practices that create competitive advantage (Schuler and
Jackson 2005, 11–35).
Figure 3.4 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,
Strategic Management.
Figure 3.4 The Environmental Analysis Process
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.
•
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 (Certo and Peter 1993). For example, what would be the impact of a trend
in drones delivering products?
HR professionals monitor changes that might affect their programs and policies through
HR/business publications and media, attending conferences/workshops, using
professional consultants, and being a member of the provincial HR association.
Many of the publications and websites listed in HR Planning Notebook 3.1.1 (refer to Tables
3.1 and 3.2) are monitored by HR practitioners. We have included American sources
because the authors’ experience suggests that Canadian HR trends lag behind U.S. trends
by a year or two. For example, workplace harassment was a hot issue in the United States
three years before it became important in Canada. Relevant HR associations are listed in
HR Planning Notebook 3.1.2. The research journals listed in Table 3.2 are available through
institutional libraries.
HR Planning Notebook 3.1.1: Publications of Interest to HR Professionals
Table 3.1 Canadian, U.S., and International Publications
CANADIAN
U.S. and INTERNATIONAL
Canadian Business
Bloomberg Businessweek
Canadian HR Reporter
Fortune
Canadian Journal of Learning and Technology
HR Focus
The Financial Post
HR Magazine
The Globe and Mail Report on Business
People Management
HR Professional Now
The Economist
Ivey Business Journal
Training
Workplace Today
Table 3.2 Research Journals
RESEARCH JOURNALS
Academy of Management Perspectives
Academy of Management Review
Benefits Canada
Business Horizons
The Canadian 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 Quarterly
Occupational Outlook Quarterly
Personnel Journal
Personnel
Personnel Psychology
Public Personnel Management
International Journal of Training and
Development
HR Planning Notebook 3.1.2: 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 Industrial Relations Association
•
National Payroll Association
•
International Personnel Management Association IPMA-Canada
•
Canadian Society for Training and Development
•
The Conference Board of Canada
•
International Association for Human Resources Information Management
Association
•
North American Human Resources Management Association
•
Society for Human Resources Management (SHRM)
•
Society for Industrial and Organizational Psychology
•
World at Work
3.2 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, Determining HR
Demand. An excellent evaluation of all these approaches can be found in Rothwell and
Kazanas (1988). The steps of conducting scenario-based HR planning are outlined in HR
Planning Notebook 3.2.1. Many chief human resource officers (CHROs) are finding
themselves in the role of chief scenario planner because of labour shortages and profound
events such as the pandemic (Marsh 2021, 1–7). Students are invited to experience a
scenario-based technique as part of a group exercise at the end of this chapter.
HR Planning Notebook 3.2.1: 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
predicted needs and motivations of key employees? What changes do we forecast
in the quality and 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 community college
might be established.
Source: Boxall and Purcell (2008, 294)
3.2.1 Competitive Intelligence
Competitive intelligence (or business intelligence) is a formal approach to obtain
information about your competitors. Learn how competitive intelligence is gathered in
Video 3.2.
Video 3.2 Competitive Intelligence Analysis [5]
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 (Coyne and Horn 2009, 90–97). 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 (Wheelen and
Hunger 2008)?
3.3 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 the 1970s, could those working in HRM have predicted what it
would look like in 2022? Even 10 years ago, it would have been difficult to forecast the
impact of technology and remote work and the interest in mental well-being. Most HR
strategists limit themselves to a two- to three-year period and extrapolate from current
trends.
3.3.1 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, try to determine which of these HR issues, taken
from headlines in HR publications as this text is being written, are critical and which will
prove insignificant:
•
Robots replacing 80 percent of manufacturing jobs.
•
One-third of the workforce selling its time, talent, or products online.
•
Hybrid work.
Four criteria have been suggested for identifying significant trends (Ofek and Wathieu 2010,
124–131):
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.
Video 3.3 describes how the of use of robots in the construction industry is growing.
Video 3.3 Robotic Builders in the Construction Industry [6]
Just as there is a reaction for every action, for every trend there is a counter-trend, and
counter-trends 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.
3.4 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 economic
climate; globalization; the political and regulatory context; and issues related to
technology, demographics, and social and cultural 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.
3.4.1 Economic Climate
The economic indices we are so familiar with from the media are also important to HR
strategists. Let us refer to 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 company’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; and
•
anxious about interest rates because they affect how much a company is willing to
borrow to grow its business and invest in employees.
Any economic recession, for example, will result in many changes to HRM in businesses.
Many employers try to reduce fixed costs by replacing permanent 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 3.4.1 for a
discussion on the gig economy.
HR Planning Today 3.4.1: 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. More than two-thirds of millennials now have side hustles, and
more and more young people see an employer as a simple "stop on the way to the next
opportunity," not a destination at all. In 2021, about one-third of Canadian workers were
working remotely, up from 4 percent five years earlier. Statistics Canada estimates that
about 40 percent of jobs can be done remotely (Statistics Canada 2022). These workers,
using digital talent platforms like Upwork and collaborative digital tools like Slack, Trello,
and Google Docs, can work whenever and wherever they want. This is the main explanation
for the rise in the use of independent contractors.
Video 3.4 describes some of the advantages and disadvantages of the gig economy.
Video 3.4 The Gig Economy (For transcript please refer to Chapter 3: Video Transcript.) [7]
These independent contractors (shown in Figure 3.5) are not just clustered at the bottom of
the labour pool, such as ride-hailing drivers. Indeed, the rise of the super-temp (those top
managers 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:
1. Free agents who choose this work and derive their income from it (30 percent)
2. Casual earners who use it to supplement their incomes (40 percent)
3. Reluctants who would prefer traditional jobs (14 percent)
4. Financially strapped individuals who work like this out of necessity (16 percent)
Figure 3.5 Do you think that this delivery person is a free agent, a casual earner, a reluctant
gig worker, or financially motivated only? [8]
The advantages for organizations are obvious (lower labour costs, reduced benefits, less
training, etc.). But 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.
Sources: Simko Clair (2021); Titleman Colla (2017); Manyika et al. (2016); Scheiber (2017)
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 (Ragan 2014, B2).
An important role of HR managers will thus entail becoming knowledgeable about
outsourcing. Interestingly, a drop in demand for contingent, temporary, and contract
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 expectations of
employee productivity; putting emphasis on succession planning and readiness; investing
in leadership development; using non-cash rewards such as time off, time flexibility, and
learning opportunities; and retraining employees for new jobs (Schramm, Coombs, and
Victor 2011).
3.4.2 Globalization
Another trend to watch is increasing globalization, due to global supply chains and
compatible technologies. Firms now manage employees across borders, each of which
has unique cultural, competitive, and regulatory constraints (Storey, Wright, and Ulrich
2019, 71).
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 Agreement (NAFTA), now the Canada–United
States–Mexico Agreement (CUSMA) in Canada and the United States–Mexico–Canada
Agreement (USMCA) in the United States gradually removed tariffs and other trade barriers
in North America (Figure 3.6).
Figure
3.6 The Canada–United States–Mexico Agreement (CUSMA) removes barriers to trade
between the countries. [9]
The labour market in Canada is affected—it has been estimated that one in five jobs in
Canada is related to international trade (Chatzky 2017). 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
counterparts in the United States, while professionals and those in higher-level positions
earn less than those in the United States. As these agreements make the workforce more
mobile, Canadian businesses need to work hard to recruit and 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 have workers who are willing to work
longer hours for less money than workers in more developed countries. McDonald’s has a
great deal of experience in globalization, and when the company 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 (Overman 2002, 7).
Globalization issues now include crisis management and evacuation in cases of terrorism,
civil war, and the outbreak of infectious diseases. HR managers will need to develop
international competencies, as discussed in Chapter 11, Strategic International HRM.
3.4.3 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. The most interesting legal issues currently are those dealing with
gig workers, who typically have no rights, no benefits, and few protections. Provincial
governments are trying to enact laws to provide more protection to them, as outlined in
Video 3.5.
Video 3.5 Minimum Wage for Gig Workers? [10]
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 company 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 (Young
2010, 24–28).
3.4.4 Technology
Human resources technology is a broad term encompassing software and hardware that
automates HR tasks, such as recruitment, hiring, payroll, compensation, benefits,
andperformance management (Figure 3.7). However, as with all technology, HR tech is
experiencing a shift, from providing basic services such as payroll to offering solutions that
cover the employee experience. Simply put, a good payroll product is no longer complete
without addressing employee engagement (Simko Clair 2021).
Figure 3.7 HR professionals can analyze data to track trends and predict employee
behaviour. [11]
Robots are replacing humans for repetitive and dangerous tasks. As robots become
affordable, and artificial intelligence improves its voice recognition, large numbers of
workers will be displaced (Bernstein 2016). Technology has already had a large impact on
HR and is predicted to continue to do so at an even faster pace. The Future of Jobs Survey
2020 by the World Economic Forum cites “information and data processing,” “performing
complex and technical activities,” and “performing physical and manual work activities” as
the top job functions that machines will take over from humans by 2025. The same study
found that 97 percent believe the pandemic sped up their company’s digital transformation
by an estimated average of six years (Frey 2021).
Table 3.3 lists the top five job roles in increasing and decreasing demand across industries.
Table 3.3 Top Five Future Job Roles Demand (Schwab and Zahidi 2020)
INCREASING DEMAND
DECREASING DEMAND
Data Analysts and Scientists
Data Entry Clerks
AI and Machine Learning Specialists
Administrative and Executive Secretaries
Big Data Specialists
Accounting, Bookkeeping, and Payroll
Clerks
Digital Marketing and Strategy
Specialists
Accountants and Auditors
Process Automation Specialists
Assembly and Factory Workers
There is a choice that every company, department, and hiring manager must face: rip and
replace, or reuse and recycle the workforce. There are pros and cons to both approaches.
In some cases, letting the skilled labourers go and hiring a new tech-savvy workforce in lieu
of upskilling makes sense; but that only exacerbates the widening skills gap. Society is
looking for businesses that will take the time, effort, and resources to invest in employees
and equip them with the new skills needed to navigate new innovations. How? Success has
been achieved by assessing the attitude and aptitude of a current workforce and upskilling
those who possess both, then onboarding others with expertise to oversee them. With a
blended approach, the experts oversee the recently trained to accomplish the work.
The Fourth Industrial Revolution (4IR)
Although still in its early stages, the Fourth Industrial Revolution (4IR) (or Industry 4.0),
which involves a broad range of artificial intelligence, robotics, and machine learning
technologies, will fundamentally change the way many of us work and relate to one
another (Nankervis et al. 2019, 3–19). Driven by technology, this transformation presents a
range of challenges, as well as opportunities, where we might expect HR professionals
would lead the way. However, little is currently known in relation to how prepared HR
professionals are to ready their organizations for this new era of work and associated
resourcing.
The findings indicate that while most HR professionals believe that FIR technologies might
be useful for their organizations (by assisting with improving job performance, increasing
productivity, and making jobs easier for employees), contrarily many did not intend to use
them in the foreseeable future. Social media has influenced how organizations recruit,
check references, and manage the off-site conduct of their employees (Nankervis et al.
2019, 3–19). Table 3.4 in HR Planning Notebook 3.4.1 outlines the impact and level of
impact of technology on an organization.
HR Planning Notebook 3.4.1: Impact of Technology on Organizations
Table 3.4 Impact of Technology
Impact on Organization
•
•
•
•
Requires changes in
skills and work habits of
employees
Level of Impact
•
Employees have to be provided with
constant training, and skills are no longer
viable for decades.
•
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.
•
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 allows employees to
locate farther from their offices, and
allows employers to choose office
facilities farther from major cities.
Elimination of some
lower-level positions and
layers of management
Less hierarchy, more
collaboration
Telecommuting options
•
•
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 (2020); Mello (2002); Schramm and Burke (2004)
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
management information. Online counselling for managers is available, and managers can
complete performance appraisals interactively. 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 (Figure 3.8).
Figure 3.8 HR professionals use software to manage employee activities. [12]
Nearly one in five Canadian employees are in occupations at high risk of automation with
few or no options to transition into lower-risk occupations without significant
retraining. The top five industries in which these occupations are most concentrated are
accommodation and food services, manufacturing, retail trade, construction, and health
care and social assistance (Gresch 2020).
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. Figure 3.9 presents another example of
driverless trains in Denmark that can operate automatically at all times, including door
closing, obstacle detection, and emergency situations.
Figure 3.9 Driverless Trains in Denmark [13]
But HR professionals do not seem to be embracing technology. While most HR
professionals believe that technologies might be useful for their organizations (by assisting
with improving job performance, increasing productivity, and making jobs easier for
employees), contrarily many did not intend to use them in the foreseeable future
(Nankervis et al. 2019, 3–19). Their attitudes range from "do nothing" to let the workers
decide," as described in HR Planning Today 3.4.2.
Chapter 8, Information Technology for HR Planning, provides a complete review of HR and
IT.
HR Planning Today 3.4.2: Attitudes of HR towards Adopting Technology
Strategy 1: Doing Nothing
When HR professionals were asked why they were doing nothing, they offered three logical
reasons:
1. The company has many other competing priorities in the near term. Is it worth
investing in something that is so long-term and uncertain in its impact?
2. Job changes and automation are moving a lot more slowly than the experts
predicted. We’ll be able to adjust as the changes come.
3. There’s so much uncertainty around the prognostication that we’re likely to be
wrong.
Strategy 2: Building Digital Skills
Amazon, for instance, has committed to spending 700 million dollars on retraining to
ensure that its employees have the skills they will need to thrive in an increasingly digital
job market. The company’s primary focus is the third of its workers in distribution centres,
its transportation network, and nontechnical roles at headquarters.
Strategy 3: Predicting Job Trends
JPMorgan Chase has announced a 350-million-dollar investment in reskilling related to
artificial intelligence (AI)-related job changes, and the bank is being both predictive and
granular about the initiative. It’s working with researchers from MIT and elsewhere to
understand – based on a “suitability for machine learning” (SML) assessment – which skills
and jobs are most likely to be replaced by AI.
Strategy 4: Helping Workers Choose Their Own Futures
Unilever is helping workers take more ownership of their own paths. The company begins
by describing alternative career progressions. Then, workers choose target occupations
and the skills needed to attain them. The company then provides training to help them gain
those skills.
Source: Davenport and Westerman (2021)
3.4.5 Demographics
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 institutions,
and so on. Demographic issues facing Canadian employers include the underutilization of
designated groups, especially those with disabilities and Aboriginal people and
immigrants. Other issues include the impact of baby boomers retiring and the rethinking of
what it means to retire, and the educational choices of young students. According to
Statistics Canada (2019), the ratio of younger workers (aged 25 to 34) to older workers
(aged 55 and older) in the workforce has declined in recent years' indicating ratio, which
means that the growth in the number of younger workers has not been keeping pace with
the increase of older workers.
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 highskilled jobs such as engineering technicians, for which employers face labour shortages.
Indeed, the labour market can be described as an hourglass shape. At the top are
knowledge workers, with high-level skills and opportunities for development, working fulltime for high compensation. The squeezed middle is composed of the traditional middle
managers and white collar professionals, whose jobs (such as those that involve legal
processes) are being automated. At the bottom of the hourglass are routine jobs, requiring
few skills or little training. Technology will eliminate 14 percent of these jobs over the next
20 years (Holbeche 2022).
Sources for labour will become international. Ford, GM, 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 concern with the division of
labour in Canada: a shortage of people with the right skills who can earn good money and
expect benefits, and a surplus of people available to work in “McJobs.” Employment and
Social Development Canada (ESDC), 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 (Brown 2002a, 3, 6).
Diversity
There is increasing diversity in the workforce (Figure 3.10). Terms such
as minority and majority have lost their meaning. Only in Canada are these terms used, and
given that "whites" no longer command the highest wages or best jobs (male whites have
lower education and earn less than many "visible minorities), it may be time to abolish
them. Visible minorities are hard to define. For example, Greek Canadians are classified as
European (white), while their neighbours from Turkey are grouped as West Asian and thus a
visible minority. Linguist concepts such as "racialized individuals" and BIPOC (Black,
Indigenous and People of Colour) also are problematic (Taylor et al. 2022).
Figure 3.10 Employers need to recruit from underutilized demographic groups. [14]
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 an important source of competitive advantage in the future. Given
the competition for critical skills, organizations that are able to exploit diverse talent will
gain competitive advantage.
Generational Differences
Employers must manage several generations of employees in the workplace.
•
Baby Boomers. The supply of baby boomers (those born between 1946 and 1964)
are characterized by values such as security, authority, tradition, and a rigid moral
code. 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.
•
“Baby busters” (those born between 1965 and the mid-1970s) follow the boomers,
and 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.
•
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 (born after the mid-1990s) will represent 30 percent of the workforce
by 2030. Their attributes are agility, creativity, curiosity, and digital competence (The
Conference Board of Canada, and Conference Board, Inc. 2022).
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" (Adams 2010, 45-48). 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. For
example, younger employees have expectations around the meaning of work (which is not
central to their lives), purpose (not just pay), flexibility in hours, and places that suit their
domestic circumstance. Their psychological contract could be stated as: "Build the job
around me" (Holbeche 2022). Instead of an employee value proposition offered by
organizations, a personal value proposition will be created (Boudreau and Ziskin 2011,
255–266).
3.4.6 Social and Cultural Factors
Right To Privacy
Figure 3.11 Employers can learn about a worker's home life during Zoom calls. [15]
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? Close and
unpredictable employee monitoring has been shown to negatively impact employees’ selfefficacy and reduce organizational citizenship behaviours (voluntary helping behaviors).
When employees are aware that they are monitored, they feel less trusted and more
powerless. Many remote workers do not have a designated office space in their home
environment (refer to Figure 3.11, for example), which means the video conferencing is
capturing aspects of their private lives that employers have no legal right to observe (Jeske
2021, 42–46). Video 3.6 features a discussion about companies monitoring work-fromhome productivity during COVID-19.
Video 3.6 Monitoring Work-from-Home Productivity [16]
Work–Life Balance
Another issue is the employee’s attempt to balance a personal life with an ever-moreencompassing work life. Many employees face the challenge of trying to spend 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 (Tomlinson 2002, 1, 12). 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.
Work–life balance is important enough for employee mental health that governments are
attempting to regulate it. The Ontario government, for example, recently passed the Right
to Disconnect Act. Employers with 25 or more employees must have a written policy on
disconnecting from work; i.e., the right to not engage in work-related electronic
communications during non-work hours. Video 3.7 highlights the issues surrounding the
Right to Disconnect Act.
Video 3.7 Right to Disconnect Act [17]
Remote Work
The ability to work remotely, accelerated by the pandemic, is probably the most important
HR issue currently. According to a 2021 survey, among workers who quit during the
pandemic, one in four did so for the ability to work from anywhere. (The Conference Board
of Canada, and The Conference Board Inc. 2022). A recent study found that 33 percent of
workers would look for a new job if they were required to return to the office full-time. The
same study reported that 51 percent of workers prefer a hybrid model where they work
partly from home and partly in the office, when needed (Farooqui 2021).
We will spend some time analyzing remote work. First let us define it. Remote work is the
practice of an employee working at their home (Figure 3.12), or in some other place that is
not an organization's usual place of business (Cambridge Dictionary n.d.).
Figure 3.12 Working from home may result in working irregular and more hours. [18]
Many terms are used when people talk about “remote work,” including telework,
teleworking, telecommuting, distance work, working from home (WFH), mobile work, work
from anywhere (WFA), e-working, and the flexible workplace (Duxbury and Halinski 2021).
The advantages and disadvantages of working remotely for both employees and their
employers are outlined in HR Planning Notebook 3.4.2.
HR Planning Notebook 3.4.2: Advantages and Disadvantages of Remote Work
Table 3.5 presents the advantages and disadvantages of remote work for the employee and
Table 3.6 presents the advantages for the employer.
Table 3.5 Advantages and Disadvantages of Remote Work for Employees (Duxbury
and Halinski 2021, 4)
For Employee:
ADVANTAGES
•
Saving in time and money (no
commute, no parking, no eating out,
etc.)
•
Improved productivity, as employees
are more able to concentrate on
individual work tasks and experience
fewer distractions from the office
•
Increases in autonomy and flexibility
(i.e., more control over when you work,
what you work on)
•
Increases in job satisfaction, morale,
and engagement with work
•
Increased ability to avoid office politics
•
Employees with in-demand skills can
live where they choose
For Employee:
DISADVANTAGES
•
Can be lonely working at
home
•
Efforts less likely to be
recognized (“out of sight,
out of mind”)
•
May negatively impact
career advancement;
danger of being overlooked
for promotion
•
Less social contact: harder
to get to know colleagues,
share ideas, build trust
•
Fewer spontaneous
communications
•
More difficult to work as a
team—especially if others
are office-based
•
Can result in overwork, as
people do not keep regular
work hours
•
Work–life balance blurring;
more difficult to separate
work from personal life
•
Long hours of
teleconferencing can be
exhausting
•
Lack of needed equipment
and support and challenges
with Internet/WiFi
Table 3.6 Advantages and Disadvantages of Remote Work for Employers (Duxbury
and Halinski 2021, 4)
For Employer:
ADVANTAGES
•
Enhanced ability to recruit and retain
talent: increased talent pool to
choose from, as employers can
source talent from anywhere in the
world with Internet connectivity
For Employer:
DISADVANTAGES
•
More difficult for managers to
effectively supervise remote
workers
•
Reduction in hassles and costs
associated with immigration
•
Increases in management’s
workload
•
Reduction in company costs, mostly
due to real estate savings
•
More difficult to onboard and
acculturate new employees
•
Employee productivity enhanced
•
More difficult to mentor
employees
•
Increased profitability
•
Reduces social cohesion in the
organization
•
Reduction in absenteeism
•
Challenges with data security
and regulation
•
Enhanced disaster preparedness
•
Difficult to schedule team
meetings
•
Negatively impacts the
organization’s ability to
successfully engage in
brainstorming, problemsolving, and knowledge-sharing
•
A more level playing field for
organizations that wish to improve
diversity, equity, inclusion
HR needs to prepare work-from-home guidelines and policies for the entire workplace
ecosystem supporting a fully remote workforce, with capabilities and technologies that
enable them to support critical business operations. These policies are important because
the hype of remote work often does not match the reality of remote work. Refer to HR
Planning Notebook 3.4.3.
HR Planning Notebook 3.4.3: Research vs Reality of Remote Work
After reading the research in Table 3.7, share what the reality is of your or your friends'
remote working experiences.
Table 3.7 Remote Work versus Enforced Work at Home during COVID-19 (Duxbury
and Halinski 2021, 7)
Research on Remote Work
Tells Us
•
•
It is voluntary—
employees considered
their situation and
preferences and how to
supervise employees
who are working
remotely. They elected
to work at home.
Optimum results: work
from home one to three
days a week.
•
They have a “home
office” that conforms to
ergonomic design
principles.
•
Remote workers are
Reality of Remote Work during
COVID-19
•
Worker had no choice
(enforced work at home)—
public health mandated work
from home.
•
Work from home 24/7.
•
Many employees who worked
from home during COVID-19
did not have a “home office"
and worked where they could
find a spot.
•
Managers are also working
Your
Experience
supervised by managers
who have received
training on how to
motivate, engage, and
evaluate employees who
are working remotely.
•
Remote workers chose
tasks to do at home that
benefit from the ability
to work without
interruptions and that
require concentration.
During COVID-19 it is
assumed that all tasks
can be done at home
with little to no loss in
productivity.
•
Remote workers have
access to everything
that they need to
productively work on
chosen tasks at
home/outside the office.
•
Remote workers
understand that you
cannot work from home
if your children or elderly
parents are at home with
you and are
unsupervised.
•
Your experiences as a
remote worker should
not vary with age,
gender, marital status,
from home. Many had no
training on how to supervise
employees who are working
remotely.
•
Interruptions are common
and many reported finding it
hard to concentrate with
children and partners also at
home (Figure 3.13).
•
Many employees had to
cobble together what they
needed to work productively
away from the office. Internet
connections were sometimes
unreliable.
•
At many points during the
pandemic, employees had to
balance working at home with
schooling and child care.
Many were also concerned
with the health and wellbeing of their elderly
relatives.
•
Young single people without
children or elder care are
having a very different
experience with remote work
parental status, etc.
•
Remote work improves
work–life balance.
•
Remote work enhances
productivity, as
expectations with
respect to start and stop
times, communication
protocols, etc. are
shared before people
start to work at home.
Expectations are
respected by managers,
colleagues, and clients.
•
Employers select
carefully when
determining who can
work remotely—this
work arrangement is
given only to those with
the discipline/desire to
work outside the office.
than are employees in the
full-nest stage of the life
cycle.
•
Emergency work from home
is destroying work–life
balance for parents—COVID19 means that many
employees and their families
cannot use time or space
cues to separate work and
life.
•
Many employees are having
to squeeze work in around
schooling of children, caring
for children, and other
demands on their time—they
are getting up early or staying
up late to get work done. In
many cases, productivity
gains during the pandemic
can be linked to an increase
in work hours.
•
All non-essential workers are
working from home or were
laid off. Some of these
employees who worked
remotely during the
pandemic either did not have
the discipline to work from
home or did not want to work
remotely.
Figure 3.13 Working from home is harder for people with child or elder care
responsibilities. [19]
Contingent Workers
Another significant trend in Canada is the continued growth of contingent
workers. Congent workers are a group of people who do not have a contract that explicitly
defines any long-term employment with a company (Human Resources MBA 2022). They
work as independent contractors, contract workers, freelancers, gig workers, consultants,
temporary talent, or remote workers. HR staff do not normally use the term contingent
worker. They refer to these types of workers as freelancers, consultants, independent or
contract workers, or gig workers. While there is limited job security in these types of
arrangements, the hours can be flexible and payment is made on a piece-work basis,
sometimes resulting in higher compensation especially for professional employees.
The pros and cons of employing contingent workers are listed in Table 3.8.
Table 3.8 Advantages and Disadvantages of Employing Contingent Workers
ADVANTAGES
DISADVANTAGES
•
Flexibility in type and amount of
labour resources
•
Save costs in benefits and tax
•
Immediate access to expertise not
present internally
•
Savings in long-term compensation
costs
•
Lack of loyalty to employer or
company
•
Disturbs organization's core
morale and culture
•
Training costs
•
Worker carries the full
risk; limited benefits
These workers may or may not voluntarily choose to pursue contingency employment and
may experience different work-life challenges than traditional workers (Connelly and
Gallagher 2004, 959–983). 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 (Ainsworth and Purss 2009,
217–235). 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 development
opportunities, what other practices can be equally effective in engaging these employees?
3.5 Constituent Groups
In addition to the 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 an organization’s strategy. These groups, referred to as
constituent groups, hold expectations of the HR function, which can influence HR strategy
and practices.
Constituent groups are groups of people who have an interest in the projects, policies, or
outcomes of an organization’s decisions. Sometimes called interested parties, they follow
the actions of the organization and lobby to have their interests satisfied. These groups
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 constituent groups such as unions, regulatory agencies, or
customers. Let us review some of these organizational constituent groups and their
interests in HR.
3.5.1 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 implications 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 (refer to Chapter 7, Succession
Management) and leadership development. An emerging trend is having the CHRO report
to the CEO and interact frequently with the board of directors (refer to Figure 3.14). This
trend has been driven by three factors. (1) War for talent is a high priority for CEOs. (2)
Corporate scandals have brought attention to the excessive pay of CEOs and the board
worries how this might drive dysfunctional decision-making—boards rely on the CHRO to
set pay. (3) High-profile failures of some CEOs make succession planning very important to
boards (Storey, Wright, and Ulrich 2019, 88).
Figure 3.14 The board of directors develop the vision, mission, and strategy of the
organization. [20]
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 (Guth and Tagiuri 1965, 123–
132).
Research has shown that different types of strategies require different types of managers
and executives. Studies of these managerial elites have found that managers with certain
personalities—for example, those with a tolerance for ambiguity—manage firms with a
growth strategy more successfully than those with a harvest strategy (Gupta and
Govindarajan 1984, 25–41).
3.5.2 Senior Management
Senior managers are typically responsible to the executives for the execution of the
strategy and organizational performance. 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, HR
Assessment and Analytics.
3.5.3 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,
compensation, 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.
3.5.4 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 future. They are concerned with HR policies
on compensation, training and development, 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.
3.5.5 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 co-operative 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 (Brown 2002b, 3, 12). Unionized employees receive
higher wages and have better working conditions than their non-unionized counterparts
(Lawler and Mohram 1987, 293–300).
3.6 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
everything. Most organizations examine the following two factors to determine which are
the important trends that may affect them.
1. The probability of these trends actually occurring
2. The likely impact of each of these trends on the organization
3.6.1 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 professional
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 general environment scanning, companies can analyze the business environment
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 3.6.1 describes in detail how the Global Wood Group company scans
the external environment to identify threats and opportunities.
HR Planning Today 3.6.1: The Global Wood Group
The Global Furniture Group is a large privately-owned, vertically-integrated manufacturing
organization. It is perhaps the largest manufacturing organization operating within the City
of Toronto. The Global Wood Group (Global Wood), which designs and manufactures office
furniture from engineered wood panels, is a semi-autonomous division of the Global
Furniture Group.
The furniture manufacturing industry in Canada has suffered during the twenty-first century
from a number of negative external events including the removal of protective tariffs,
increased importation of inexpensive furniture from Asia, the Great Recession, and the
COVID-19 pandemic.
Manufacturers of residential furniture, largely located in a triangle around Kitchener,
Stratford, and Strathroy, were the first to feel the impact of these threats. Eventually, these
companies began to close down or transfer their production outside of Canada. Even
world-renowned Gibbard Furniture, established in 1835, went into bankruptcy.
Management at Global Wood began to adopt some environmental scanning practices and
therefore was able to foresee that the same threats would also impact Canadian-based
manufacturers of commercial furniture. Their predictions were realized, and some of
Global Wood’s major competitors, including Steelcase, closed or ceased manufacturing in
Canada. Global Wood was prepared to buck this trend. Management at Global Wood had
implemented initiatives and practices to identify threats and opportunities and to put into
place programs to focus on identified opportunities.
Human Resources at Global Wood had long been active in forecasting labour market
trends, assessing employee engagement, monitoring government policy changes, and
liaising with various constituent groups. Therefore, when the decision was made to
become even more proactive and to expand environmental scanning efforts and
constituent group consultations by establishing a series of procedures that would meet
with recognized international standards, it was only logical that the human resources
department would take the lead.
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
administration was outsourced to a third party. Human Resources instead assumed
responsibility for leading the development and implementation of multiple “management
systems.” The strategic activities undertaken by Global Wood are credited with allowing it
to weather the storm and continue to thrive.
Environmental Scanning
Environmental scanning is a key component of Global Wood’s strategy, and all managers
are required to attend weekly meetings to review and discuss identified threats, goals, and
accomplishments, and to formulate and approve upcoming projects. At these meetings,
managers assess performance regarding labour efficiency, defect rates, raw material
usage, scrap rates, and energy consumption and compare them to their pre-set goals and
past performance.
In order to benchmark their performance and set goals, the managerial staff at Global
Wood access information from multiple external sources.
1. Professional associations: Organizations such as the Wood Manufacturing
Council, the Canadian Home Furnishings Alliance, and the Canadian Manufacturers
& Exporters Association lobby governments on behalf of manufacturers. Networking
with these groups provides Global Wood with access to pertinent industry
information. For example, members of Global Wood’s management first formally
became aware of proposed changes to American government policy regarding the
importation of furniture from Asia, proposed changes to applicable free-trade
agreements, and revisions of environmental and labelling standards while attending
functions hosted by these groups.
2. Professional conferences and seminars: By attending in-person or virtual
conferences hosted by organizations such as the Canadian Manufacturers &
Exporters Association, the Canadian Woodworking Council, the Canadian Home
Furnishings Alliance, and the Conference Board of Canada; through various federal,
provincial, and municipal government agencies; and by attending industry trade
shows, Global Wood representatives are able to gain information from multiple
reliable sources. This includes viewing displays and presentations by organizations
selling machinery and equipment to furniture manufacturers, learning of any
efficiencies that may be gained by acquiring new equipment, ascertaining the
competitors who are purchasing new machinery, and benchmarking the production
techniques they are using.
3. Trade publications: Publications such as Wood Industry, Woodworking, and Inside
Logistics reveal information about new products coming onto the market, new
production techniques, and the latest offerings of industrial equipment
manufacturers.
4. Workplace Safety and Insurance Board (WSIB)-approved Safety Group and
Safety Excellence Program: Representing key players in the industry and featuring
active participation by Workplace Safety and Prevention Services (WSPS)
consultants, the Safety Excellence Program requires regular attendance at seminars
and information sessions, and annual completion of an audit. Participation in this
program has resulted in improved working conditions and a reduction in workplace
safety incidents from the base year of over 78 percent, and has had a beneficial
impact on corporate culture, employee well-being, and employee engagement.
5. Multiple management systems: By implementing and becoming certified or
registered in multiple international management standards, Global Wood is able to
benchmark its quality, environmental, energy management, corporate social
responsibility, and occupational health and safety programs. These systems require
annual external audits, allowing Global Wood to gain insights from auditors who
have international experience with and exposure to multiple industries and
organizations. These auditors provide updates and feedback regarding production
techniques, automation, technology, quality, and environmental and safety
management best practices.
6. External consultants, academic institutions, and trainers: In order to implement
these management programs, Global Wood availed itself of the expertise available
through consultants, external trainers, and post-secondary institutions. These
individuals or organizations are able to apprise Global Wood of new practices and
research into areas impacting Global Wood’s ongoing operations. Global Wood
established relationships with universities and colleges by hiring co-op and summer
students from a variety of programs, including engineering, public health,
environmental studies, and fire protection engineering.
Through these and other scanning activities and consultations with constituent groups,
Global Wood has been able to assess current and potential threats and opportunities.
Threats
Government policies have greatly impacted costs at Global Wood:
1. Elimination of tariffs and restrictions on the implementation of wood
furniture: The elimination of these tariffs opened the floodgates for inexpensive
imports from Asia. The residential furniture industry was impacted first. After
gaining dominance in this sector, offshore manufacturers targeted the lucrative
commercial furniture market. Global Wood combated this by increasing its research
efforts. Using government and industry sources and publications, Global Wood was
able to monitor shipments of lumber, equipment purchases, traffic through the
ports of entry, industry sales figures, and the marketing/advertising of its
competitors.
2. Increases in the cost of electricity: As electrical costs escalated in Ontario, what
had been a competitive advantage was erased. Global Wood addressed this by
establishing a formal energy management program.
3. Elimination of mandatory retirement: Many of the staff at Global Wood were hired
at a relatively advanced age. As Global Wood has introduced new programs to
enhance workplace engagement, health, and safety, staff turnover has markedly
decreased. Therefore, many of Global Wood’s more senior workers have decided to
continue working rather than retire. Global Wood now has an employee group with a
median of 17 years of service. The aging of the workforce has resulted in an
increased need to automate material handling.
4. Multiple increases in the minimum wage have had an inflationary impact on
overall wages: From 2007 to October 2022, the minimum wage in Ontario
increased from 8.00 dollars per hour to 15.50 per hour. Ancillary increases in
vacation pay, the addition of a new public holiday (Family Day), and increases in
employer contributions to CPP have had an inflationary impact on wages. Global
Wood has maintained employee loyalty by offering promotion opportunities; making
all contributions to an employee benefits program; establishing a deferred profit
sharing plan; and providing a safe work environment with steady work, through fulltime, permanent employment.
5. Repeated changes to employment standards legislation: By maintaining
relationships with professional organizations, schools, industry groups, and
government agencies, Global Wood has been able to ensure ongoing legal
compliance. A prime example of the benefits of this was that Global Wood had
previously introduced employee contracts, allowing for temporary layoffs within the
constraints set by the Employment Standards Act, which would not be constituted
as a "breach of contract/constructive dismissal" under the common law. Due to
closures or downsizing necessitated by the pandemic, a great many other
employers without similar clauses in their employment agreements have faced or
are facing lawsuits launched by employees.
6. The COVID-19 pandemic: Compliance with COVID requirements impacted
numerous work rules and routines. Mandatory pre-screening was implemented, as
were masking rules, distancing rules, and limitations regarding access to
lunchrooms and common areas. Training as well as conference and seminar
attendance became primarily virtual. Staff who had pre-existing health issues or
who had someone at risk in their household chose to take Infectious Disease
Emergency Leave (IDEL). The international supply chain was severely impacted by
the shortage of shipping container, ships, and staff to unload the ships once they
arrived at ports. Due to its proximity to suppliers and clients, Global Wood is not
dependent on maritime transport and therefore was largely immune from this
serious issue.
Other challenges have included the following:
1. A deficit in the supply of labour: Organizations such as Global Wood require
maintenance technicians, tool and die makers, cabinetmakers, and other skilled
labour that is increasingly in short supply. The pandemic created a short-term but
significant labour shortage in southern Ontario.
2. Fluctuating currency/exchange rates: Global Wood sells approximately 83
percent of its production internationally. Therefore, international exchange rates
have a significant impact on profitability. Management at Global Wood conducts
daily updates regarding the Canadian dollar versus the American dollar and tracks
economic indicators in order to predict the trajectory of these values.
Opportunities
By engaging in external scanning and ongoing consultations with constituent groups, the
management of Global Wood was able to identify some key strengths and opportunities.
1. Implementation of internationally recognized management standards: These
standards have improved Global Wood’s operational efficiency by instituting measurement
of every factor in the manufacturing process, and incentivizing continuous improvement.
To attain certification to these international standards, Global Wood had to develop and
implement formalized policies, 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. The programs
implemented include the following:
a. ISO 9001 Quality Management was the first system implemented. This requires that each
worker in the manufacturing process be trained in inspection techniques; 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 Global Wood to decrease defective pieces, reducing customer complaints and
rework. The defect rate is now .004 of the total pieces produced.
b. ISO 14001 Environmental Management was implemented next. Reducing the shipment
of defective pieces initially resulted in an increased use of raw materials, as defective parts
were identified in-house and scrapped. The Environmental Management program
converted Global Wood to a “zero waste to landfill” mandate. All scrap and waste is
recorded and continuous improvement goals are set. Scrap wood is now ground and
transported to a facility where it is converted to energy. All staff are responsible for sorting
any scrap, recording it, and, whenever possible, finding ways to re-use it. Staff were
awarded with bonuses for identifying ways to reduce scrap and raw material use. Through
rigorous controls, the amount of scrap per unit produced has been reduced by 42.08
percent since the implementation of this program.
Human Resources staff monitor these programs by conducting twice daily spot-checks
using a pre-set checklist, which includes interviewing various production workers to
determine their understanding of their roles and the requirements of the management
systems. By being present on the shop floor and regularly engaging with production
workers, Human Resources staff have improved their visibility and enhanced the trust they
have developed with the rest of the staff at Global Wood.
Suppliers are informed of these programs and the need to complete supplier compliance
surveys indicating their compliance with environmental and labour standards and the need
to inform Global Wood of any alternate materials that have a smaller environmental
footprint.
Maintaining ongoing certification in the above programs requires a commitment to
continuous improvement. Therefore, due to the success of the first programs and in order
to implement continuous improvement, Global Wood also undertook the following
initiatives.
c. As part of the environmental management process, Global Wood’s in-house team
developed a new formula replacing petroleum-based materials used in the manufacturing
of its edging with up to 35 percent bio-based materials. This proprietary product is
recognized by the United States Department of Agriculture as a BioPreferred Product.
d. An ISO 45001 program in occupational health and safety was implemented. This
program has resulted in the companies of the Global Wood Group reducing their safetyrelated incidents by 78 percent from the benchmark year, and receiving rebates and/or
credits averaging over 40,000 dollars per year from the WSIB. As part of its safety program,
Global Wood had previously developed an infectious disease plan, which included
maintaining an in-house stock of hydrogen peroxide-based disinfectant, installing hand
sanitizer stations and maintaining a supply of hand sanitizer, and even stockpiling a small
supply of face masks. At the onset of the pandemic when there was a worldwide shortage
of these supplies, Global Wood was able to continue operations due to its infectious
disease plan.
e. Faced with increasing energy costs, an ISO 50001 program was implemented. Using
“real time” measuring equipment on each piece of production machinery, Global Wood 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 resulted in significant cost savings, as well as credits and rebates from various
levels of government and/or government agencies. Global Wood was one of the first 15
organizations in all of Canada to attain certification to this international standard. Since the
implementation of this program, Global Wood has reduced the amount of energy used per
unit produced by 14.5 percent from the benchmark production year and has received over
200,000 dollars in grants and rebates for its energy management projects. As this program
matures and as energy costs escalate, the savings will only continue to increase.
f. Certification to the Forestry Stewardship Council’s international Chain of Custody
standard. This standard ensures that all wood materials used in the manufacture of Global
Wood products are sustainably harvested. As part of this program and in conjunction with
its ISO 14000 program, Global Wood began sourcing its raw materials and components
primarily from sources within Canada. This decision proved beneficial during the
pandemic, as it allowed Global Wood to bypass the most serious international supply
chain constraints.
2. Proximity to customers: The overwhelming majority of Global Wood’s customers are
located in the United States and eastern Canada. This enables a rapid response in terms of
order fulfillment. Through its management programs, Global Wood has decreased the
average turnaround time for orders from the traditional 30 days required by most
competitors to shipment within three days of receipt of an order. Rather than mass
producing, all Global Wood products can be custom ordered from thousands of SKUs.
Global Wood’s trained staff identify the hardware and the wood panel sizes and colours
required for each order, and complete the required quality inspections. Products are
manufactured and then shipped within a day of completion rather than being stored or
warehoused. This provides a competitive advantage against overseas manufacturers who
mass produce and then ship their finished product by sea, taking many weeks or even
months to arrive.
3. Proximity to suppliers: In implementing its energy and sustainable wood programs,
Global Wood was able to identify and establish relationships with local suppliers. Its
geographic proximity assisted in decreasing turnaround time by allowing for a just-in-time
supply of materials. Therefore, Global Wood has no need to stockpile or warehouse raw
materials. This reduces the warehousing/storage space required and also improves cash
flow by avoiding having to pay for materials kept in inventory.
During the pandemic, with the international supply chain overwhelmed and ports unable to
unload ships in a timely manner, proximity to customers became a key competitive
advantage for Global Wood.
4. The existence of multiple universities and colleges in the geographic area: As well as
taking advantage of seminars, conferences, and other learning opportunities, Global Wood
teamed with a number of post-secondary institutions to hire students in programs as
diverse as environmental management, engineering (chemical and mechanical), fire
technician engineering, and public health. While providing relevant academic knowledge,
these students gain hands-on experience helping to monitor and update existing programs,
assisting in the implementation of new programs, and participating in audits.
5. A well-trained workforce: All line management and supervisory staff at Global Wood
have progressed into their roles through internal promotion. Beginning on their first day,
Global Wood employees undergo intensive training, following pre-set checklists for each
job function and duty. The management programs require that staff receive training on a
quarterly basis. Auditors monitor training and documentation, and assess employee
understanding of the key concepts of the procedures. Employees are empowered and their
roles are expanded beyond physical requirements to include mental skills such as
inspection and quality control.
Global Wood also schedules monthly meetings of its workplace joint health and safety and
environmental committees. These committees review Global Wood’s stated goals and
objectives for each of its programs; are provided with statistics regarding actual
performance; and make recommendations regarding the programs, training, and other
relevant issues.
The implementation of these energy, environmental, Forestry Stewardship Council,
sustainable manufacturing, and corporate social responsibility standards has ensured that
Global Wood qualifies as a supplier for governments, government agencies, and health
care facilities, which requires demonstrated compliance with environmental programs.
Global Wood’s certification to these standards also allows the purchasers of Global Wood
products to qualify for LEED credits.
Implementation of and adherence to these programs have significantly improved quality,
decreased defect and scrap rates, and improved the use of raw materials and consumption
of energy. Furthermore, by improving the work environment, Global Wood has reduced
turnover among staff since the onset of these programs by 21 percent.
Unfortunately, regulations and workplace rules imposed during the pandemic resulted in
multiple audits being postponed or placed on hiatus. However, stemming from the success
of these programs and their positive impact on its operations, management at Global
Wood is committed to the programs' ongoing maintenance. The positive results from
engaging in environmental scanning, identifying opportunities, and implementing programs
to take advantage of the opportunities are evident not only in Global Wood’s continued
success but also by a very specific measurable, which Global Wood compiles on a regular
basis to assess and benchmark its performance and to set goals for future improvements.
Case prepared by Dan McGarry, Director of Human Resources, the Global Wood Group,
2022.
Summary
L.O. 3.1 Environmental factors have varying degrees of influence on organizations. Being
adaptable to changing environments is necessary for developing dynamic capabilities and
gaining a first-mover advantage. Managers must develop strategies while keeping a close
eye on what is going on in the world outside the organization. The systematic monitoring of
the major factors influencing an organization is known as environmental scanning.
L.O. 3.2 HR professionals can use a variety of methods to forecast the future or extrapolate
from current events to determine the impact on HR practises. Trend analysis, the Delphi
technique, the nominal group technique, impact analysis, and scenario planning are
among these methods. Competitive intelligence is a formal method of gathering
information about competitors.
L.O. 3.3 Challenges in environmental scanning include trying to isolate the critical issues
from the insignificant trends. There is growing concern among businesses that they will not
be able to find enough skilled workers. The use of robots may change the demand for
skilled workers, and the repeal of mandatory retirement may encourage more tradespeople
to stay in the workforce. Trends must be viewed in the context of larger social and
economic changes.
L.O. 3.4 HR strategists keep an eye on a variety of environmental factors, including the
economic climate; the political and regulatory environment; and issues concerning
technology, demographics, and social and cultural values and norms. When scanning each
factor, it is essential to consider the potential impact on the organization and its strategy,
as well as how HRM can be adapted in response to environmental changes.
L.O. 3.5 Constituent groups such as shareholders, unions, customers, and executives
contribute strongly to the formulation and implementation of strategy.
L.O. 3.6 HR professionals need to assess the importance and severity of the trends and
respond proactively. HR Planning Today 3.6.1 describes how the Global Wood Group
company scans the external environment to identify threats and opportunities. A SWOT
analysis can be used by organizations to determine the impact on the organization. Most
professional associations have a group that advocates for legislation that benefits the
membership.
Glossary
Competitive intelligence A formal approach to obtain information about competitors.
Contingent workers A group of people who do not have a contract that explicitly defines
any long-term employment with a company.
Constituent groups Groups of people who have vested interests in an organization’s
decisions.
Demographics The study of population statistics.
Environmental scanning Systematic monitoring of trends affecting the organization.
Fourth Industrial Revolution (4IR) (or Industry 4.0) Involves a broad range of artificial
intelligence, robotics, and machine learning technologies, and will fundamentally change
the way many of us work and interact with one another.
Remote work The practice of an employee working at their home, or in some other place
that is not an organization's usual place of business.
References
Adams, A. 2010. “Changing Role of HR.” Human Resources (June): 45–48.
Ainsworth, S., and A. Purss. 2009. “Same Time, Next Year? Human Resource Management
and Seasonal Workers.” Personnel Review 38 (3): 217–
235. https://doi.org/10.1108/00483480910943304.
Bernstein, A. 2016. “Globalization, Robots, and the Future of Work: An Interview with
Jeffrey Joerres.” Harvard Business Review. Accessed August 11, 2022.
https://hbr.org/2016/10/globalization-robots-and-the-future-of-work.
Boudreau, J.W., and I. Ziskin. 2011. “The Future of HR and Effective
Organizations.” Organizational Dynamics 40 (4): 255–
266. https://doi.org/10.1016/j.orgdyn.2011.07.003.
Boxall, P. and J. Purcell. 2008. Strategy and Human Resource Management, 2nd ed. New
York: Palgrave Macmillan: Figure 11.1, 294.
Brown, D. 2002a. “Ottawa Unveils National Training and Development Strategy.” Canadian
HR Reporter 15, no, 5 (March): 3, 6.
Brown, D. 2002b. “CAW—Big Three Negotiations Set the Mark.” Canadian HR Reporter 15,
no, 12 (June): 3, 12.
Cambridge Dictionary. n.d. “Remote Working.” Accessed August 5, 2022.
https://dictionary.cambridge.org/dictionary/english/remote-working.
Certo, S.C., and J.P. Peter. 1993. Strategic Management: A Focus on Process. Boston: Irwin.
Chatzky, A., Sergie, M. A., and McBride, J. 2017. "NAFTA and the USMCA: Weighing the
impact of North American Trade." Council on Foreign Relations. Accessed August 11, 2022.
https://www.cfr.org/backgrounder/naftas-economic-impact.
Connelly, C.E., and D.G. Gallagher. 2004. “Emerging Trends in Contingent Work
Research.” Journal of Management 30 (6): 959–983.
https://doi.org/10.1016/j.jm.2004.06.008.
Coyne, K.P., and J. Horn. 2009. “Predicting Your Competitor’s Reaction.” Harvard Business
Review 87 (April): 90–97.
Davenport, T.H., and G. Westerman. 2021. “How HR Leaders Are Preparing for the AIEnabled Workforce.” MIT Sloan Management Review. Accessed August 11, 2022.
https://sloanreview.mit.edu/article/how-hr-leaders-are-preparing-for-the-ai-enabledworkforce/.
Duxbury, L., and M. Halinski. 2021. "Remote, Office, or Hybrid? Employee Preferences for
Post-Pandemic Work Arrangements." Ottawa. 1–37. The Conference Board of Canada.
Accessed August 11, 2022. https://challenge.carleton.ca/wpcontent/uploads/2022/03/Remote-Office-Hybird.pdf.
Enright, M. 2008. The Michael Enright Show. CBC, July 13, 2008.
Farooqui, S. 2021. “Working from Home, Canadians Are Saving Thousands. Some Don't
Want to Go Back to the Office.” The Globe and Mail. Accessed August 11, 2022.
https://www.theglobeandmail.com/investing/personal-finance/household-
finances/article-working-from-home-canadians-are-saving-thousands-some-dont-wantto-go/.
Frey, J. 2021. "Humans + Bots – HR's Role in the New Blended Workforce." HR.com.
Accessed August 11, 2022.
https://www.hr.com/en/magazines/hr_strategy/april_2021_hr_strategy_planning_excellenc
e/humans--bots-%E2%80%93-hr%E2%80%99s-role-in-the-new-blendedworkfo_knrggtyt.html.
GM Investor. 2022. “GM Continued to Gain U.S. Market Share and Extended Its Truck
Leadership in the Second Quarter Fri, July 1, 2022.” News Release Details. Detroit: GM.
Accessed August 29, 2022. https://investor.gm.com/news-releases/news-releasedetails/gm-continued-gain-us-market-share-and-extended-its-truck.
Gresch, D. 2020. “Responding to Automation: How Adaptable Is Canada's Labour Market?”
The Conference Board of Canada. Accessed August 11, 2022.
https://www.conferenceboard.ca/e-library/abstract.aspx?did=10626.
Gupta, A., and V. Govindarajan. 1984. “Business Unit Strategy Managerial Characteristics,
and Business Unit Effectiveness at Strategy Implementation.” Academy of Management
Journal 27 (1): 25–41. https://doi.org/10.5465/255955.
Gurdus, L. 2017. “Cramer Explains Why General Motors' Stock Is Back in Style on Wall
Street.” CNBC. Accessed August 11, 2022. https://www.cnbc.com/2017/10/16/cramerexplains-why-general-motors-is-back-in-style-on-wall-street.html.
Guth, W.D., and R. Tagiuri. 1965. “Personal Values and Corporate Strategy.” Harvard
Business Review 43, no. 5 (September/October): 123–132.
Holbeche, L. 2022. Aligning Human Resources and Business Strategy. Routledge.
Human Resources MBA. 2017. “What Is a Contingent Worker? - Human Resources
Degrees.” Human Resources Degrees. 2017. Accessed August 24, 2022.
https://www.humanresourcesmba.net/faq/what-is-a-contingent-worker/.
Jeske, D. 2021. “Monitoring Remote Employees: Implications for HR.” Strategic HR
Review 20 (2): 42–46. https://doi.org/10.1108/shr-10-2020-0089.
Klebnikov, S. 2020. “Tesla Is Now the World’s Most Valuable Car Company with a $208
Billion Valuation.” Forbes, July 1, 2020.
http://www.forbes.com/sites/sergeiklebnikov/2020/07/01/tesla-is-now-the-worlds-mostvaluable-car-company-with-a-valuation-of-208-billion/?sh=1663fa305334.
Lawler, E.E., and S.A. Mohram. 1987. “Unions and the New Management.” Academy of
Management Perspectives 1 (4): 293–300. https://doi.org/10.5465/ame.1987.4275643.
Manyika J., S. Lund, J. Bughin, K. Robinson, J. Mischke, and D. Mahajan. 2016. "Independent
Work: Choice, Necessity, and the Gig Economy." McKinsey. Accessed August 11, 2022.
https://www.mckinsey.com/featured-insights/employment-and-growth/independentwork-choice-necessity-and-the-gig-economy.
Marsh, T. 2021. "HR Leaders' Role as Chief of Scenario Planning People and
Strategy." Alexandria 44, no. 2 (Spring). 1–7.
https://www.shrm.org/executive/resources/people-strategyjournal/spring2021/pages/feature-marsh.aspx.
Mello, J. A. 2002. Strategic Human Resource Management, 1st ed. Thomson
Learning. Jeffrey A. Mello, Strategic Human Resource Management, 1st ed., © 2002,
reprinted with permission of South-Western, a division of Thomson Learning.
Nankervis, A., J. Connell, R. Cameron, A. Montague, and V. Prikshat. 2019. “‘Are We There
Yet?’ Australian HR Professionals and the Fourth Industrial Revolution.” Asia Pacific Journal
of Human Resources 59 (1): 3–19. https://doi.org/10.1111/1744-7941.12245.
Ofek, E., and L. Wathieu. 2010. “Are You Ignoring Trends That Could Shake Up Your
Business?” Harvard Business Review 88 (7–8): 124–131.
Overman, S. 2002. “HR Is Partner in McDonaldizing Employees in New Countries.” HR
News (May): 7.
Porter, M.E. 2008. “The Five Competitive Forces That Shape Strategy.” Harvard Business
Review, January 2008.
Ragan, C. 2014. “How to Heal the Deep Scars from the Financial Crisis.” The Globe and
Mail (November), B2.
Reh, F. J. 2020. “Find out How Your Boss Might Be Watching You at Work Electronically.” The
Balance Careers. January 14, 2020. Accessed August 11,
2022. https://www.thebalancecareers.com/your-boss-is-watching-you-2275304.
Rothwell, W.J., and H.C. Kazanas. 1988. Strategic Human Resources Planning and
Management. Englewood Cliffs, NJ: Prentice Hall.
Scheiber, N. 2017, “How Uber Uses Psychological Tricks to Push its Drivers Buttons.” The
New York Times. Accessed August 11, 2022.
https://www.nytimes.com/interactive/2017/04/02/technology/uber-drivers-psychologicaltricks.html.
Schramm, J., J. Coombs, and J. Victor. 2011. “Workplace Forecast: The Top Workplace
Trends According to HR Professions.” SHRM. Accessed August 11, 2022.
https://www.shrm.org/resourcesandtools/hr-topics/behavioralcompetencies/documents/13-0146%20workplace_forecast_full_fnl.pdf.
Schramm, J., and M.E. Burke. 2004. SHRM 2004-2005 Workplace Forecast : A Strategic
Outlook. Alexandria, VA: Society For Human Resource Management.
Schuler, R.S., and S.E. Jackson. 2005. “A Quarter-Century Review of Human Resource
Management in the U.S.: The Growth in the International Perspective.” Management
Review 16 (1): 11–35. https://doi.org/10.5771/0935-9915-2005-1-11.
Schwab, K., and S. Zahidi. 2020. The Future of Jobs Report. World Economic Forum. Figure
22. Accessed August 5, 2022.
https://www3.weforum.org/docs/WEF_Future_of_Jobs_2020.pdf.
Simko Clair, Niko. 2021. “Top 4 HR Tech Trends for 2021 & Beyond.” HR.com. Accessed
August 11, 2022.
https://www.hr.com/en/magazines/hris_payroll_excellence_essentials/july_2021_hris_pay
roll_excellence/top-4-hr-tech-trends-for-2021-beyond_krpz2dke.html.
Society for Human Resource Management. Workplace Forecast: A Strategic Outlook,
2004–2005. SHRM.
Statistics Canada. 2022. “The Changing Nature of Work.” Accessed August 11, 2022.
https://www.statcan.gc.ca/o1/en/plus/249-changing-nature-work.
Storey, J., P.M. Wright, and D. Ulrich. 2019. Strategic Human Resource Management. First
Edition. New York, NY: Routledge, 2019. Series: State of the art in business research. 71,
88. https://doi.org/10.4324/9780429490217.
Taylor III, A. 2008 “Gentlemen, Start Your Engines.” Fortune, January 21, 2008.
Taylor, P.S., B. Cooper, D. Solway, and G. Morgan. 2022. "It's Time to Abolish the Absurd
(and Slightly Racist) Concept of 'Bisible Minorities'". C2C Journal (March).
https://c2cjournal.ca/2022/02/its-time-to-abolish-the-absurd-and-slightly-racist-conceptof-visible-minorities/.
Tesla. 2021. “10-K.” www.sec.gov. 2021. Accessed August 22, 2022.
https://www.sec.gov/Archives/edgar/data/1318605/000095017022000796/tsla20211231.htm.
The Conference Board of Canada, and Conference Board Inc. 2022. “Future-Scape:
Reimagining the Who, What, How, Where of Work.” The Conference Board of Canada. June
7, 2022. https://www.conferenceboard.ca/e-library/abstract.aspx?did=11684.
The Economist. 2010. "Government Motors No More.” The Economist Newspaper, August
19, 2010. http://www.economist.com/node/16846494.
Titleman Colla, N. 2017. “So Long, Future of Work…Hello, New World of Work” The Globe
and Mail, B12.
Tomlinson, A. 2002. “Trickle Down Effects of Retiring Boomers.” Canadian HR Reporter 15,
no. 11 (June): 1, 12.
Wheelen, T.L., and J.D. Hunger. 2008. Concepts in Strategic Management and Business
Policy (11th ed.). Saddle River, NJ: Pearson Prentice Hall.
Young, L. 2010. “The New Normal.” HR Professional (February): 24–28.
Credits
[1] Image by Phonlamai Photo/Shutterstock.com
[2] Image by buffaloboy/Shutterstock.com
[3] Video courtesy of Global News/YouTube
[4] Image by Maxime on Unsplash
[5] Video courtesy of NetBase Quid/YouTube
[6] Video courtesy of CTV News/YouTube
[7] Video courtesy of Financial Post/YouTube
[8] Image by Robert Anasch on Unsplash
[9] Image by Ronnie Chua/Shutterstock.com
[10] Video courtesy of CHCH News/YouTube
[11] Image by BAZA Production/Shutterstock.com
[12] Image by Andrey_Popov/Shutterstock.com
[13] Image by A. Aleksandravicius/Shutterstock.com
[14] Image by wavebreakmedia/Shutterstock.com
[15] Image by KATERINA BOLOVTSOVA CC0
[16] Video courtesy of CBC News/YouTube
[17] Video courtesy of Global News/YouTube
[18] Image by Annie Spratt on Unsplash
[19] Image by Ketut Subiyanto CC0
[20] Image by fizkes/Shutterstock.com
Case Study: Loblaw Environmental Analysis
Loblaw Companies Ltd. (Loblaw) operates a number of supermarket chains across two
market segments. The discount division focuses on offering the affordable essentials and
includes No Frills, Maxi, Real Canadian Superstore, and Extra Foods, while
the market division focuses on the customer experience, and includes supermarkets such
as Loblaws, Zehrs, Provigo, Fortinos, T&T Supermarket, and others. Loblaws supermarkets
compete in the customer experience market segment along with chains such as Sobeys,
Longos, Farm Boy, Organic Garage, Jean-Coutu, and Whole Foods, as well as big-box
stores such as Costco and Walmart. There are also quite a few niche grocery stores that
service specific areas in Canada. For example, 49th Parallel Grocery has six locations in
British Columbia (49th Parallel Grocery 2020). Given the number of competitors in this
industry, the relative ease for buyers to switch grocery stores, and the limited access that
supermarkets have to differentiated suppliers, it would be expected that competition and
rivalry would be fairly high among supermarket chains. This suggests that any single
supermarket chain would have a limited ability to charge more for products than their
competitors. In order to perform better than the competition, supermarkets must work to
increase the overall size of the grocery basket of each shopper, and to lock a customer in
as a loyal, regular shopper.
Given the concentration of large companies (such as Walmart, Costco, and Loblaw) in the
supermarket industry, some food suppliers are becoming concerned that these large
buyers are getting too much control over prices. For example, if a supplier wishes to sell
their product at Walmart, that supplier must agree to Walmart's terms around pricing,
including price rollbacks in future years. Furthermore, it is common practice in the grocery
industry to charge suppliers additional fees to place products in certain prime shelf
locations in the store or to run product promotions, etc. Food supplier advocacy groups
such as the Food and Consumer Products of Canada group, the Dairy Processors
Association of Canada, the Canadian Federation of Agriculture, and the Canadian Baking
Association, among others, have called for the federal government in Canada to step in
and impose guidelines around a code of conduct for supermarket chains. Imposing a code
of conduct in this industry is intended to reduce the amount of control that the largest
companies in this industry hold through sheer buying power, in an effort to ultimately keep
prices under control for consumers (Robertson 2020).
The pandemic certainly led to an increase in cooking and eating at home, which was
associated with greater sales volumes from grocery stores. It is uncertain at this point to
what extent this trend will continue given the shift to digital purchase and delivery options,
or whether consumers will return to previous levels of restaurant use and supermarket
purchasing. Aside from large social disruptions like the COVID-19 pandemic, the per capita
amount of money spent by Canadians in grocery stores is fairly stable, which means that
the market for groceries is mature. It is difficult to obtain growth in mature markets. Since
the market size is not growing substantially, participants in mature markets can achieve
growth most easily by either buying competitors or taking their market share. Both of these
options can be challenging and expensive.
PESTDL Analysis
PESTDL analysis is a useful method to understand the environmental factors that can
influence a firm's strategy and its chances of success given an intended strategy. PESTDL is
a systematic method to examine the environmental factors that might affect the firm.
PESTDL is an acronym that stands for political, economic, social, technological,
demographic, and legal influences. There are several forms of this analysis, all of which
stem from PEST (political, economic, social, technological). PESTDL is used by listing each
of these factors and brainstorming around the types of influences that might represent
opportunities or threats to the firm from each factor.
To perform a PESTDL analysis, start by creating a table such as the one listed below:
Table 3.1 PESTDL Analysis
PESTDL Factors
Political factors
Economic factors
Opportunities and Threats
Opportunities:
Threats:
Opportunities:
Threats:
Social factors
Technological factors
Demographic factors
Legal factors
Opportunities:
Threats:
Opportunities:
Threats:
Opportunities:
Threats:
Opportunities:
Threats:
This type of analysis is best done in groups, where every member of the group contributes
to brainstorming around opportunities and threats for each of the environmental factors.
The point of brainstorming is to generate ideas rather than to carefully examine them, so at
this point it is important to simply write every idea down on a piece of paper and get every
idea into the table. It is not necessary to develop ideas for every factor. For example, if no
one can think of possible opportunities or threats from a legal perspective when
conducting a PESTDL analysis, then simply leave that factor off the table after completing
the brainstorming session. At the end of the brainstorming session, discuss each possible
opportunity and threat for each factor in order to arrive at a final list of environmental
influences on the intended strategy.
Refer to Loblaw's annual report for Case Study Question 3.1.
Case Study Question 3.1
Using Loblaw's annual report, recent news articles, and any other relevant sources,
conduct a PESTDL analysis for Loblaw. What are the primary environmental influences that
represent opportunities for the company moving forward, given its current value
proposition? What are the primary threats?
Case Study Question 3.2
Given what you know about the actions (or tasks) that Loblaw performs in order to
implement its value proposition, should Loblaw consider altering any of these tasks or
perform any different tasks in order to capitalize on these opportunities or mitigate these
potential threats?
References
49th Parallel Grocery. 2020. “49th Parallel Grocery.” www.the49th.com. Accessed
September 1, 2022. http://www.the49th.com/.
Robertson, S. K. 2020. “Industry Groups Renew Calls for Regulation of Canada’s Grocery
Industry.” The Globe and Mail, August 26, 2020.
https://www.theglobeandmail.com/business/article-industry-groups-renew-calls-forregulation-of-canadas-grocery/.
Chapter 4: The HR Forecasting Process
Figure 4.1 HR forecasting ensures that organizational requirements take precedence over
resource constraints. [1]
Learning Outcomes
L.O. 4.1 Understand what HR forecasting is and its strategic importance to the firm.
L.O. 4.2 Understand the importance of job analysis and competency modelling in the
planning process, and be able to determine when one method is preferred over the other.
L.O. 4.3 Explain the value of human capital to the firm and the distinction between generic
and firm-specific human capital.
L.O. 4.4 Understand the basics of project management and decide when to use an Agile or
Waterfall project management style. Understand and be able to outline the basics of
Scrum.
L.O. 4.5 Understand the rationale for giving special attention to specialist/technical
workers, managers, recruits, and designated groups in the HR forecasting process.
L.O. 4.6 Comprehend the forecasting process in general, as well as the various types of
forecasting methods.
L.O. 4.7 Outline the environmental and organizational factors affecting HR forecasting.
Introduction
Workforce Planning in Canada
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 150 Canadian
firms, the Conference Board of Canada found that the most important long-term HR
priorities reported by organizations are (1) developing leaders, (2) workforce planning, and
(3) succession management (Figure 4.2).
All these activities, including leader development and leadership 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. Of the
organizations participating in the survey, roughly 50 percent indicated that they do not have
full-time staff dedicated to workforce planning, and 68 percent indicated that they lack
confidence in their practices and metrics that support workforce planning.
Figure 4.2 Strategic HR planning should focus on issues relating to the business strategy.
[2]
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 strategybased 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: Cooper and Jackson (2017).
4.1 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 Chapter 2, Aligning
HR with Strategy, and Chapter 3, Environmental Influences on HRM, 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 activities 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 fulfill the firm’s
requirement for human capital.
4.1.1 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 (refer to HR Planning Notebook 4.1.1
for a discussion of the primary skills necessary for successful HR forecasting). (Pynes
2004, 389–404; Stone and Fiorito 1986, 635–642; Meehan and Ahmed 1990, 297–307).
HR Planning Notebook 4.1.1: The Skills Necessary for Effective Planning
HR planning takes many forms and uses a variety of methods. In many smaller
organizations, planning is initiated 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 planning 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. Communication skills are necessary to deal with multiple departments
and people, and to ensure that the processes used (both quantitative and qualitative) have
gathered as much information as possible (Figure 4.3).
Figure 4.3 Effective communication is an important skill for the planning function. [3]
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 available 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 organization, and often need to coordinate with
external consultants. Managing the forecasting process itself can be a sizable task.
Source: Lapide, L. (2003), Spring Issue, p20-21. Journal of Business Forecasting, published
by the Institute of Business Forecasting (IBF), www.ibf.org.
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 reducing HR costs,
increasing organizational flexibility, ensuring a close linkage to the macro business forecasting process, and ensuring that organizational requirements take precedence over
issues of resource constraint and scarcity.
4.1.2 Reducing HR Costs
Effective HR forecasting focuses on a comparison between the organization’s current jobrelated knowledge, skills, abilities, and other characteristics (KSAOs) that workers must
have to perform successfully in the position and those desired in the 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 (Schramm 2005, 152–153;
Walker 1980). In this manner, organizations can reduce their HR costs as they take a longrun 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 developments 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, a situation 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.
4.1.3 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 flexibility (Wagner,
Hlavacka, and Bacharova 2000, 383–407; Beck 1991, 3–19; Schuler 1989). 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. Video 4.1 explains how the current job market means employers have to offer
more.
Video 4.1 Red Hot Job Market [4]
Finally, by keeping the level of available human capital in step with operational
requirements, the organization minimizes any HR 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, attrition, or even layoffs. 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.
4.1.4 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 (Bechet 2000, 465–477; Fulmer 1992). The
implementation of an HR forecasting 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. HR Planning Today 4.1.1 gives 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
(Helton and Soubik 2004, 459–473; McEnery and Lifter 1987, 61–87).
HR Planning Today 4.1.1: Strategic Planning at Starbucks
Starbucks has enjoyed meteoric growth as a company since the 1990s. The company's
mission has been "to inspire and nurture the human spirit - one person, one cup, and one
neighborhood at a time." In order to fulfill its mission, Starbucks has positioned itself for
years as the "third place," a place to find comfort, to socialize, or to get some work done
that is neither at home nor at the workplace. Starbucks provides free Wi-Fi and comfortable
seating, and the baristas ask your name so that they can learn who you are, learn how to
prepare your favourite order, and get to know you personally (Figure 4.4).
Figure 4.4 Strategic human capital activities connect directly to the firm's value
proposition. [5]
Starbucks' human capital strategy is to place employees in a central role in delivering the
Starbucks experience. Employees, which Starbucks refers to as partners, create the
Starbucks experience for customers by making beverages that are individually tailored to
the customer, and by creating the link between the customer and the quality in the
Starbucks supply chain that has taken the coffee bean from seed to cup. Starbucks
demonstrates its commitment to partners through coaching opportunities; mentorship
opportunities; its partner network program; and its diversity, inclusion, and equity efforts.
However, the COVID-19 pandemic acted as a catalyst for changes in the coffee service
industry in North America. Customers have been moving away from the in-store experience
in favour of online orders and quick in-store pickup (Figure 4.5).
Figure 4.5 When firms change the way the value proposition is implemented, the
associated human capital requirements must also change. [6]
By 2019, 80 percent of Starbucks purchases were for orders to-go, and 20 percent of those
orders were made using the Starbucks app. Starbucks has begun to respond to these
changes in consumer behaviour by focusing on automation and on speed of delivery. A
major part of this transition strategy is a new artificial intelligence system called Deep
Brew, which works with the Starbucks app to learn the individual customer's preferences,
make drink suggestions, offer a discount coupon for a different drink that is faster to
prepare if there is a long wait at a particular store, and generally anticipate and personalize
customer needs.
These changes have placed new requirements on employees, who now have to fulfill
orders placed through an app (Figure 4.6), keep up a pace set by electronic orders,
manually update order fulfillment screens, and in general deal with a way of interacting
with customers and order processes that is entirely different from the methods that are
more consistent with the mission to inspire and nurture the human spirit one cup and one
person at a time. Essentially, the human capital strategy has become disconnected from
the operational strategy. As a result, partners at 150 stores across the United States have
filed petitions for union membership.
Figure 4.6 Starbucks is increasing sales through mobile apps. [7]
When organizations experience changes in their environment, they must respond quickly to
the changes or risk losing market share to firms that are better able to respond to the
changing environment. Starbucks' current issues with its employees, who have
traditionally been treated by the firm as a source of competitive advantage, represent one
of the problems that can result from a change in operational strategy that is not consistent
with the current strategy and that is not accompanied by complementary changes in the
human capital strategy. This is an example of an existing HR strategy that does not
demonstrate external fit with the firm strategy. Starbucks will need to address this gap
before it will be able to return to its former level of success.
Sources: Rainey (2022); Starbucks (2022)
Once these objectives 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, who either confirm the viability of the original
business objectives or indicate that changes (e.g., the allocation of additional resources)
need to be made to enable the objectives to be met. HR Planning Today 4.1.2 outlines the
experiences of one corporation, Publicis Sapient, in aligning its corporate values with its
HR processes.
The business forecasting process, therefore, establishes overall organizational objectives,
which are input into the HR forecasting process (Fulmer 1990, 1–11). 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 management 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 (Schuler and Walker 1990, 4–19).
HR Planning Today 4.1.2: Aligning Culture and Core Values with Key HR Processes
Publicis Sapient Corporation provides IT strategy and marketing design consulting services
for clients worldwide based out of 53 offices, including ones in Canada, the United
Kingdom, Australia, and the Nordic countries. 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, Publicis Sapient'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
the managing director and top staff sit at tables with the rest of the workforce.
Leadership development programs rely extensively on 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 Publicis Sapient
employees receive mandatory semi-annual performance assessments, over and above the
regular coaching and counselling activities demonstrated on a day-to-day basis. These
360° PPG (people, performance, and growth) performance appraisals include a selfappraisal 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 personnel, other factors that enable successful retention of key performers
include ample opportunities for further education and learning, organizational support for
corporate social responsibility and community improvement initiatives, and a
comprehensive and integrated awards and recognition program. Approximately every six to
eight weeks, Publicis Sapient 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 Publicis Sapient 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 Publicis Sapient
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, in interview with Lou-Ann Paton, Amanda Peticca-Harris, and Brad
Simms of Publicis-Sapient, Canada (2012)
4.1.5 Ensuring that Organizational Requirements Take Precedence Over Resource
Constraints and Scarcity Issues
As we present each step of the HR forecasting process in sequence throughout this text, 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 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 the attainment of
desired organizational goals and objectives must take priority over all issues concerning
resource scarcity and other implementation issues.
4.2 The Role of Job Analysis in Strategic HR Planning
4.2.1 Job Analysis
Job analysis is a systematic process for determining the KSAOs that are relevant to
performance in a particular job. These KSAOs are known as employee specifications, and
in addition to determining these employee specifications, job analysis is also the source
for a job description. HR Planning Notebook 4.2.1 explains how a job analysis focuses on
job-relevant activities. Job analysis is not to be confused with job evaluation, which is
specifically related to compensation. Job evaluation is usually performed after job
analysis, and the purpose of job evaluation is to develop a set of compensable factors that
allow jobs to be compared with one another both within a firm and across firms. Because
job analysis is the process through which the job-relevant KSAOs are developed, it is a
foundational activity in the practice of human resource management. After all, the critical
KSAOs required for a job are the basis for determining selection requirements, training
needs, and performance evaluation.
Job analysis can be any systematic method to arrive at KSAOs, provided that the chosen
method leads to valid and reliable (that is, job-relevant) knowledge, skills, abilities, and
other attributes. When the focus of job analysis is on specific jobs in which the primary
outputs of the job can be observed, KSAOs are the most prudent choice of employee
specifications. However, when the duties required in the job are frequently in flux, or when
the outputs of the job cannot be directly observed, then competency modelling might be
the preferred method for determining employee specifications.
Figure 4.7 Job analysis produces job relevant duties, KSAOs, and performance outcomes.
[8]
For example, the job of a barista (Figure 4.7) is one in which the primary duties of the job
may be directly observed. This is an example of a job that is understood well using
traditional job analysis methods. On the other hand, a senior leadership position such as
CEO (Figure 4.8) has deliverables that span potentially long periods of time, has
performance outcomes that are highly dependent on the inputs of others, and is a role that
can shift according to the organization's short-term needs. Such a role is often better
understood using a competency modelling method.
Figure 4.8 Competency modelling is useful for role-based jobs for which the job
requirements are more loosely structured. [9]
HR Planning Notebook 4.2.1: How Job Analysis is Done
In order to determine job relevant knowledge, skills, abilities, and other attributes, a job
analyst asks subject matter experts (for example, job incumbents, supervisors) five
questions:
1. What do you get paid for?
2. What knowledge do you draw on to produce the outputs? What do you need to know
to do what you get paid for?
3. What knowledge or skill do you need to apply your knowledge?
4. What do you do to get work done?
5. How do you know a job is well done? What do you look for?
The answers to these questions guide job analysts to the duties, tasks, and work outcomes
associated with a job. The knowledge, skills, abilities, and other attributes that are jobrelevant flow directly from these aspects of the job.
Source: Fine and Wiley (1971)
4.2.2 The Difference Between Job Analysis and Competency Modelling
The main differences between job analysis and competency models is that job analysis
arrives at a very detailed, granular set of job requirements (that is, KSAOs), whereas
competency models are not so fine-grained, and the outcomes of a competency model are
often more abstract than KSAOs. Some examples of job competencies can be found in
the Hogan Competency Model, which is a set of 58 general competencies from which a
given subset can be used to describe the requirements of most jobs (Hogan n.d.). Specific
examples of competencies from the Hogan model are decision making, teamwork, and
flexibility (Figure 4.9). Contrast those competencies with typical examples of KSAOs such
as knowledge of work systems, or skill in using Microsoft Excel, and it is clear from these
examples that competencies are far less concrete than KSAOs. The Hogan competency
inventory overcomes this ambiguity by providing context around each competency and a
clear definition of the competency. In short, a competency can be thought of as an
aggregation of several KSAOs, that when put together form an attribute that is useful for
high performance in a job or work role.
Figure 4.9 Teamwork, or collaborating with others to achieve goals, is just one of the
competencies in the Hogan Competency Model. [10]
As demonstrated by the barista and CEO examples, job analysis is an excellent method to
use when the job outcomes are directly observable, when the outcomes of the job task are
directly in the control of the person performing the task, and when the critical tasks for
performing the job do not change frequently. Competency models are good choices when
viewing the job more as a role to be performed, where the task outcomes may be separated
in time from the tasks, or when the interest is more in influencing job behaviour rather than
describing job behavior (Sanchez and Levine 2012, 397–425).
4.2.3 Job Analysis as the Basis for HR Planning
When job analysis or competency modelling (or a combination of the two) is performed on
all jobs in the organization, the HR function is equipped with an inventory of all known
KSAOs or competencies held within the firm. This information may be combined with the
knowledge of the core competencies—that emerged from the strategic analysis of the key
organizational activities required to implement the value proposition—to develop an
understanding of what KSAOs/competencies are held within jobs in the organization and
what KSAOs/competencies are required to implement the strategy. Such information is
crucial for designing how work is done in an age where jobs are being broken into smaller
groups of tasks. Together, this information is critical to understanding how to assess the
demand for and supply of human capital. We will explore these connections more in the
following two chapters.
4.3 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.
4.3.1 Generic Human Capital
Generic human capital represents the knowledge, skills, and abilities that are held by
employees and that are useful to the firm. This 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
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.
4.3.2 Firm-Specific Human Capital
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 understanding of the firm’s
systems, social structure, or customers. 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 its value
in the labour market. Consequently, the firm is able to retain much of the value of firmspecific human capital, which represents a potential source of competitive advantage from
human capital.
4.3.3 Human Capital Stock and Flow
Human capital stock refers to the amount of human capital within the firm at any given
time, whereas human capital flow represents how human capital stock changes over time
(Ployhart, Weekley, and Ramsey 2009, 996–1015). Figure 4.10 demonstrates the flow of
human capital from generic to firm-specific; however, this process takes time, so
forecasting must take this into account.
Figure 4.10 Human Capital Stock FlowLong Text Description
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 (Cappelli 2009, 8–15). HR Planning Today 4.3.1
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 flow will depend on the type of human capital required. For
example, firms that focus on generic human capital through the use of seasonal or parttime 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 inherently 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 Chapter 5, Determining HR Demand; Chapter 6, Ascertaining HR Supply;
and Chapter 7, Succession Management.
HR Planning Today 4.3.1: 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 requirements 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 (Figure 4.11).
Figure 4.11 Jobs are increasingly being broken apart into sets of tasks that can be
performed by specialist workers. [11]
Talent platforms such as TopCoder, Tongal, Appirio, Upwork, and InnoCentive now connect
organizations with freelance 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 employment, planners must also begin to think
less in terms of the types and numbers of jobs that are required to fulfill organizational
needs and more in terms of the the kinds of skills or competencies that are required to
fulfill strategic organizational challenges. This will require planners to have a firm
understanding 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: Boudreau (2015); Boudreau, Jesuthasan, and Creelman (2015)
4.4 Project Management
In this section we take a brief look into the field of project management, as it relates to
human capital planning. A project is any form of temporary assignment that is intended to
produce an outcome such as a product, service, or policy. Projects are generally worked on
by a team of experts with skills that are relevant to producing the desired outcome, and the
outcome of the project is usually related to increasing value for the customer, or
supporting some aspect of the business function (Figure 4.12). The advantage to a project
is that the structure, function, and capabilities of the project team can exist according to its
needs, and outside the organization's customary set of norms, policies, and practices.
Project management as a field developed as a method to help develop and bring products
to market in the engineering, construction, and aerospace industries (Pollack 2007, 266–
274).
Figure 4.12 Project teams often bring together workers with diverse specialized knowledge
to complete a task within a particular time frame. [12]
4.4.1 Project Life Cycle
Projects are typically described as having four stages. These stages can be sequential,
where a project moves from initiation to planning, execution, and closure only as the
previous stage has been completed; or stages can be recursive, where a project cycles
between planning and execution as learning takes place over the course of the project.
Figure 4.13 presents the project life cycle, which can be linear as each successive stage
occurs after the previous stage is completed; or, the life cycle can allow for learning to
occur between stages and can switch between execution back to planning until the team is
satisfied with the results. These types of projects are discussed in the next section.
Figure 4.13 The Project Life Cycle (Villanovau.com 2022)
4.4.2 Project Management Approaches
Waterfall and Agile
There are many approaches to project management. The most suitable method to deliver a
particular project is dictated by the type of project and desired outcomes. For example, the
development of a product based on a basic design might best be served by a project
management style that deals with the project outcomes in a top-down, cascading, linear
fashion, where goals are unlikely to change over the course of the project, and where each
stage of the project is completed before moving on to the next. This type of project is
commonly referred to as a Waterfall project management style (Figure 4.14). In contrast to
Waterfall project management, a software design project might require iterative steps that
can be revisited as new issues such as bugs arise or changes become necessary in the
development process (Project Management Institute 2021). This type of project might
require the need to revise goals as new issues arise, and is therefore referred to as Agile
project management (Thesing, Feldmann, and Burchardt 2021, 746–756).
Figure 4.14 Project management can take a top-down approach or an iterative approach.
[13]
Table 4.1 summarizes the decision factors to determine what type of project management
method is more suitable based on the firm's culture, the management style, the focus of
the project, the human capital needs, and the intended results of the project.
Table 4.1 Waterfall versus Agile Project Management (Adapted from Thesing,
Feldmann, and Burchardt 2021,746–756)
Project
Attribute
Waterfall
Results
Communicated clearly at project General requirements are
outset
outlined at the beginning
Style
Holistic planning from start to
finish
Agile
Uses short planning cycles;
communicates frequently with
concerned parties such as
customers
Focus
Frequent testing of hypotheses
Implement the project plan
and plans to enable quick
according to initial specifications reactions to changes in product
requirements
Culture
Careful documentation; stable
structure and resources
Comfortable with ambiguity
Human
Capital
Needs
Clear role and responsibilities;
ability to adhere to schedules
and team requirements; high
degree of organization
Ability to react flexibly and
quickly; high motivation to
succeed as a team; high level of
conscientiousness
Drawbacks
Incorrect initial project
requirements can have large
impact on results
May not fit the organization's
culture in terms of hierarchy and
leadership.
Scrum
Scrum was developed in the early 1990s for use mostly in software development
teams. Scrum is a form of Agile project management that is intended to help plan and
schedule the activities necessary to complete a particular objective. A Scrum project team
is typically no more than seven to 10 people; larger Scrum teams are divided into smaller
groups with distinct sets of goals. The idea behind small team sizes is to ensure that all
team members have a systems view of the project (for more about a systems view,
read Chapter 9, Change Management), and to facilitate greater interdependence and
communication among team members. As the popularity of Agile project management has
increased, Scrum has expanded beyond software teams to become a popular method
used today in many industries. Video 4.2. provides a brief overview of the Scrum
framework.
Video 4.2 Scrum Framework [14]
While a Scrum team has no formal hierarchy, there are three common roles (Schwaber and
Sutherland 2020). The roles are as follows:
1. Product owner: This role guides the team and ensures that the team delivers
maximum value to the customer.
2. Scrum master: This is the team facilitator, ensuring that the team is adequately
resourced with personnel and other resources.
3. Development team: A group of usually around five to seven people who work very
closely together to develop the product (Figure 4.15).
Figure 4.15 The Scrum team meets briefly every day to discuss the project status. [15]
One of the benefits of Scrum project management is that it enables the team to revise its
goals while in the process of achieving its final deliverables, and to integrate new learning
and new information while working toward its objectives. It achieves this by dividing the
work into small work cycles of one or two weeks in duration. That way, the learning
achieved during a work cycle can be integrated into the next cycle. Refer to HR Planning
Notebook 4.4.1 for more detail around the structure of a Scrum project.
While Scrum is a popular method of managing teams and deliverables that helps a team to
stay on task and to see goals being achieved incrementally and in fairly short periods of
time, it is only one method of Agile project management. Most Agile methods intend to
achieve the same benefits of incorporating new learning or revised product or service
attributes into the project management cycle, and to allow team members to see their
work transformed into customer value (Project Management Institute 2021; Lees 2021).
HR Planning Notebook 4.4.1: The Structure of Scrum Project Management
Scrum is most often used by software development teams but can be applied to many
contexts. Scrum is a way of scheduling and planning work that divides work into three
basic phases, as described in Table 4.2.
Table 4.2 Scrum Phases
Scrum
Phase
Description
Phase 1
List of work that needs to be done
Phase 2
List of items from the work that need to get done that will be
implemented in this work cycle
Phase 3
End product of end goal of the work cycle
These phases are broken into the following categories:
•
Product backlog: A set of features, goals, or solutions that is continuously being
updated. It is essentially the to-do list.
•
Sprint backlog: The list of features, goals, or solutions from the product backlog
that the team has chosen to act on.
•
Increment: The end state of a particular period of work. This represents what the
team intends to complete by the end of the work cycle. This work cycle is referred to
as a sprint, so the increment is known as the sprint goal.
These categories (product backlog, sprint backlog, and increment) are known as the scrum
artifacts.
Scrum uses the following activities to achieve its outcomes:
1. Organizing the backlog: This is done by the leader or product owner. The product
owner is tasked with ensuring the product or end result achieves its vision. To do
this, the product owner must be knowledgeable about the customer and the market
2. Sprint planning: A meeting in which the entire team determines what work will be
done in a particular sprint.
3. Sprint: The time period over which a team works to complete an increment. One of
the goals of Scrum is to offer employees a way to see the fruits of their labour, and
so sprints are generally not much longer than a couple of weeks to a month in
duration.
4. Daily scrum: A daily meeting in which the group ensures that everyone is aware of
the current status of the work. It is designed to be a quick meeting that ensures that
everyone is on the same page.
5. Sprint review: A review of the work that was done during the sprint. From here, the
team decides what aspects of the product backlog to tackle next.
6. Sprint retrospective: A meeting in which the team discusses what worked and
what didn’t work, with a focus on what went well. The intention is to improve the
process for the next round of work.
Scrum acts as a starting point for teams wishing to adopt an Agile project management
framework. Scrum is intended to provide guidance around the interactions among team
members rather than to act as a specific implementation structure.
Source: Schwaber and Sutherland (2020)
4.5 Key Human Capital Analyses Conducted by HR Forecasters
4.5.1 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 position in
the retail sector amidst the huge transition from in-store to online 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 (Perez 2017; Gagliordi 2016). 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 interpretation, supply chain
management, and logistics (refer to Figure 4.16). 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.
Figure 4.16 Strategic human capital forecasting begins with a business challenge. [16]
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 planning, it can be
useful to group the required human capital requirements into categories. A few of these
categories are discussed below (Burack and Mathys 1996).
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 applicant pool. Avoiding
the supply constraints that arise from skills gaps can be difficult, especially in specialized
skills areas, 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 auditing led to a sharp increase in
compensation for this job. Because it requires up to three years to become specialized as
an accountant in auditing, the skills gap persisted for a few years until the labour market
could respond to the gap, at which time the premium prices being paid in the market for
internal audit accountants evaporated, and compensation levels fell back to levels
consistent with similar accounting jobs.
Diversity, Equity, and Inclusion
Organizations might have strategic reasons for seeking out members of an
underrepresented 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 (Figure 4.17).
Four designated groups require special attention with respect to the degree to which they
are used as a source of labour in organizations:
1. Women
2. Indigenous peoples
3. Persons with disabilities
4. Members of visible minorities
Figure 4.17 Designated groups represent an underutilized source of labour. [17]
Particular attention must be paid to monitoring members of these designated groups with
respect to organizational opportunities (Grabosky and Rosenbloom 1975, 71–84).
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 and marginalized groups in the organization, is a
key area for HR forecasting. As organizations become more conscious of promoting
particular values as part of their brand, and as Canadian society becomes more diverse
and inclusive, forecasting the demand for and supply of underrepresented and
marginalized groups is becoming an increasingly important activity and a potential source
of competitive advantage.
Managers and Executives
Executives (CEO, president, vice-presidents, and so on) interact with key 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 environmental 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
(Zaleznik 1977, 67–78). 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.
Recruits
New entrants can bring insights into how competitors structure and operate their
businesses and may also 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.
4.6 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 (refer to HR Planning Notebook 4.6.1 for a discussion of
planning at the macro level), whereas the micro level focuses more directly on challenges
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 (Agrawal et al. 2013, 173–184):
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 characteristics 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
Chapter 5, Determining HR Demand; Chapter 6, Ascertaining HR Supply; and
Chapter 7, Succession Management.
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 (Schuler and Walker 1990, 4–19).
HR Planning Notebook 4.6.1: Human Capital Forecasting at the Macro Level
The Canadian federal government regularly updates its human capital forecasting through
the Canadian Occupational 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 measures that
COPS uses to perform its forecasting include the following:
•
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 jobs into skill levels ranging
between management, university education, college education, high skill, and onthe-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 (Government of Canada 2021).
Between 2019 and 2028, the COPS system projects that 25 occupations will show signs of
labour shortage, mostly coming from areas that require postsecondary education or
apprenticeship, and many coming from areas relating to health, skilled trades, and applied
sciences. Most new jobs are expected to be in areas that have high skills requirements.
COPS projects eight 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 (Government of Canada 2021, 2021a).
Figure 4.18 depicts projections of industries with high employment growth.
Figure 4.18 Strong Employment Growth Industries, Projection 2019-2028 (average annual
growth) (Government of Canada 2021a)
4.6.1 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 (Stone and Fiorito
1986, 635–642). The decision to use more complex forecasting methods is predicated on
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. Surveys to determine a business line's anticipated needs. This method includes
subjective 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 further 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 (refer to
HR Planning Notebook 4.6.2 for more discussion around the use of simple versus
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 mathematical or statistical knowledge will
be necessary to perform these types of analyses.
5. Qualitative models. This category of model is based on human judgment, and
includes methods such as the Delphi technique, focus groups, nominal group
technique, and scenario planning. A primary benefit of 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's 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 economic trends.
Such decisions are probably best made using qualitative methods.
HR Planning Notebook 4.6.2: Are Complex Forecasting Models Better than Simple
Ones?
Complex forecasting models are based on the availability of large amounts of data, and
use sophisticated modelling 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.
Figure 4.19 Tesla Gigafactory [18]
Complex models tend to be used most when the environment 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 regulations, 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. Figure 4.19 depicts a modern
car manufacturing plant in which the relationship between labour, data, and technology
has transformed the way work is done in this type of workplace.
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 sophisticated and more qualitative forecasting methods.
Source: Stone and Fiorito (1986, 635–642)
HR Planning Notebook 4.6.3: Categorizing Forecasting Models
Forecasting models like the general types discussed earlier in this chapter can be
categorized into three types of analytical models:
1. 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.
2. Cause-and-effect models assume that an ongoing relationship exists between one
or more causal or “independent” variables that produce change in the target or
“dependent” variable. An example is the significant negative 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.
3. Judgmental models are used for new ventures, in situations where past data do not
exist or are unreliable, in situations 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 as well as more structured models such as
the Delphi technique.
Source: Jain (2002), 18–20
Having discussed the basic forecasting process, we now examine the effects of
environmental uncertainty and of planning time horizons on HR forecasting.
4.7 Environmental and Organizational Factors Affecting HR Forecasting
4.7.1 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 (Beck 1991, 3–19;
Butinsky and Harari 1983, 11–20).
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:
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 (Bechet and Walker 1993, 1–16; Walker
1980).
The outcome of forecasts derived from these four time horizons leads to predictions 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 (Burack and Mathys 1996). 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.
HR Planning Today 4.7.1 provides an example of how Peloton's leadership made
forecasting errors based on environmental data and assumptions about the company's
strategic competitive advantage.
HR Planning Today 4.7.1: When Planning Went Wrong at Peloton
Peloton was founded in 2011 by John Foley, who had the idea that spin classes could be
done on a high-end stationary bicycle in the comfort of one's home (Figure 4.20). In
addition to the stationary bike, Peloton users can subscribe to a service that delivers live
online class experiences that track metrics like cycling pace and heart rate, so that the
online trainer can provide real-time and personal feedback during classes. It is a premium
service experience, and both the subscription service and the accompanying bicycle are at
the top end of the price range. Commercials for the service have featured people riding
their Peloton bicycle in household settings that would be at home in an architectural
magazine.
The COVID-19 pandemic caused many changes in the economy, and the fitness industry
was subject to some of the most disruptive changes that occurred. Many people found
themselves stuck in their homes, and as gyms and fitness companies closed their doors
due to pandemic restrictions, at-home fitness skyrocketed in popularity. Peloton had been
doing well as a company prior to the first COVID-19 outbreak, and its business soared as
people were stuck in their homes. The increased savings for those who were able to
continue to work from home made the purchase of high-end fitness equipment and online
workout subscriptions a sensible alternative to the gym memberships that were now put on
hold.
Figure 4.20 Peloton Stationary Bicycle [19]
Fuelled by sales of its stationary bicycles and treadmills and subscriptions to live and
prerecorded online classes, Peloton's subscribers increased from 1.4 million in 2019 to
almost 6 million in 2021, and annual revenues increased from 714 million dollars to over
just over 4 billion dollars over the same time period (Curry 2022). Peloton responded to this
huge spike in demand for its products and services by purchasing a company that
produces workout equipment, and by putting plans in place to build an additional
equipment manufacturing facility, set to be ready in 2023.
The number of employees in the company doubled between 2020 and 2021 from 3,281 to
7,643 (Peloton Interactive 2021). However, problems crept in as a result of this rapid
growth. First, Peloton faced a safety issue with its top-of-the-line treadmill, which
ultimately had to be recalled. Then, issues were reported with stationary bikes being
shipped with rust already developing in places. These issues, combined with a slowing of
subscription and machine purchases as a result of people returning to gyms and fitness
clubs, came at a very bad time for the company. Peloton was gearing up for continued highvolume growth and was suddenly facing a contraction in its market. This forced Peloton to
halt production of machines to clear out excess inventory, and to lay off 2,800 employees
(Logan 2022). Foley admitted to the forecasting blunder, saying, "To meet market demand,
we scaled our operations too rapidly, and we over-invested in certain areas of our business.
We own this. I own this, and we are holding ourselves accountable” (Logan 2022).
Video 4.3 discusses the resulting drop in demand and revenue at Peloton as postpandemic exercisers returned to the gym.
Video 4.3 Peloton Layoffs as Demand Plunges [20]
As a result, Peloton's stock has been decimated, falling from a value of almost 50 billion
dollars in January of 2021 to roughly 4.5 billion dollars by June 2022 (Yahoo Finance
2022). Foley and the head of operations at Peloton have left the company. While other
issues were also present, Peloton's leadership misread the market by making forecasting
errors based on information from the environment and assumptions about the strength of
the company's strategic competitive advantage. Peloton is a company with a strong and
loyal user base, and these events demonstrate that forecasting errors can have very
significant consequences for any firm.
Figure 4.21 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 4.21 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.
Figure 4.22 Some groups, like tradespeople, are in high demand. [21]
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
(advertisement, recruiting, and selection), and succession or replacement planning (Fink
et al. 2005, 360–381; Millett and Zelman 2005, 33-41; Van Der Heijden 2000, 36; Mason
1994, 6–11). Naturally, organizations must also conduct contingency planning to have HR
policy responses ready if substantive unanticipated changes occur (Figure 4.22).
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 cases of Classic Coke and Tylenol).
4.7.2 Reconciling Net HR Requirements
The next two chapters deal with ascertaining 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 through either internal movement of human capital or external hiring,
or a combination of both activities. A surplus in the supply of human capital can be
addressed through a number of HR policies (Figure 4.23).
Figure 4.23 Some companies respond to a labour surplus by reducing shift work. [22]
4.7.3 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 downsizing 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 methods is
used to achieve the necessary reduction in the size of the workforce.
HR Planning Notebook 4.7.1: Tips for Giving Your HR Forecasting Models a Tune-Up
HR forecasting models attempt to align an organization’s human capital with its strategic
business direction by projecting future demand and supply requirements. By implementing
a systematic process of analyzing the 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,
though, 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-touse HR processes that are readily understood by a variety of organizational decision
makers, and the reality that a multitude of individual, organizational, and environmental
factors significantly impact human resources supply and demand. These variables
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 problems
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 business
leader interviews with data on worker performance and potential.
Sources: Champion et al. (2007, 83–90); Park et al. (2008, 368–384); Hirschman (2007, 44–
50).
Summary
L.O. 4.1 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 4.1.1 provides a
summary discussion around how organizations may fine-tune their HR forecasting models.
L.O. 4.2 Job analysis and competency modelling is important when establishing the
necessary knowledge, skills, abilities, and other attributes required to implement the firm's
strategic plan. Forecasting further requires an understanding of the transfer of human
capital from generic to firm-specific human capital in order to enable planning to be a
source of competitive advantage for 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.
L.O. 4.3 According to human capital theory, investments in human capital take time to
produce financial or productivity-based returns to the firm. This is because human capital
generally enters the firm in the form of generic human capital, which develops over time
into firm-specific human capital. Firm-specific human capital refers to the skills that
employees have acquired through experience in the firm and mentorship.
L.O. 4.4 A project is any type of temporary assignment that is intended to result in a
product, service, or policy. Project life cycles typically have four stages and are usually
worked on by a team of experts with relevant skills to produce the desired outcome. The
project outcome is usually related to increasing value for the customer or supporting some
aspect of the business function. There are several approaches to project management,
including the Waterfall and Agile methods.
L.O. 4.5 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. Diversity, equity, and inclusion are also key factors to
consider when forecasting human capital needs.
L.O. 4.6 Many factors influence the forecasting process, including internal organizational
features and external factors that influence the firm. In general, the forecasting process
follows a pattern that flows from a macro to a micro perspective. The macro perspective
considers societal and economic trends.
L.O. 4.7 Flexibility in the programs HR managers use to balance human capital demand
and supply is necessary. As environmental and organizational factors increase the level of
uncertainty for HR forecasters, more flexibility is needed. Uncertainty decreases
confidence in the ability to predict the future accurately and hence reduces the HR
forecasting time horizon. Although each organization defines its specific time parameters
differently, the typical HR forecasting time horizons are current forecast, short-run
forecast, medium-run forecast, and long-run forecast.
Glossary
Agile A flexible, step-by-step approach to project management that allows for rapid
innovation and learning to be incorporated into a project.
Attrition The process of reducing an HR surplus by allowing the size of the workforce to
decline naturally because of the normal pattern of losses associated with retirements,
deaths, and voluntary turnover.
Competency models A collection of skills required for effective job performance.
Contingency plans Plans to be implemented when severe, unanticipated changes to
organizational or environmental factors completely negate the usefulness of the existing
HR forecasting predictions or projections.
Demand The organization's projected requirement for human capital.
Demand forecasting The process of determining the organization’s requirement for
specific forms of human capital.
Designated groups Groups deemed to require special attention due to the persistent
disadvantages they face in the labour market; the four designated groups include women,
Indigenous peoples, persons with disabilities, and members of visible minorities.
Envelope The range of plausible values of a prediction based on a given set of
assumptions.
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.
Generic human capital The competencies, knowledge, skills, and abilities that are held by
individual employees and that are useful to the firm.
HR forecasting Determining the net requirement for human capital by assessing the
demand for and supply of human resources now and in the future.
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
to meet its current or forecasted human capital requirements.
Human capital flow The change in the stock of human capital over time. Factors that
affect the flow of human capital include terminations, promotions, lateral movements, and
demotions.
Human capital stock The amount of any specific form of human capital that is available to
the firm at any given time.
Human capital The sum of employees’ knowledge, skills, experience, and commitment
invested in the organization.
Human resources demand The organization’s projected requirement for human capital.
Human resources supply The source of human capital to meet demand requirements,
obtained either internally (current members of the organization’s workforce) or from
external agencies.
Job analysis a systematic process for determining the critical knowledge, skills, abilities,
and other attributes (KSAOs) that are relevant to performance in a particular job.
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.
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.
Prediction A single numerical estimate of HR requirements associated with a specific time
horizon and set of assumptions.
Project Any form of temporary assignment that is intended to produce an outcome such as
a product, service, or policy.
Projection Several HR estimates based on a variety of assumptions.
Scenarios Proposed sequences of events with their own set of assumptions and
associated program details.
Scrum A form of Agile project management that is intended to help plan and schedule the
activities necessary to complete a particular objective.
Supply forecasting The process of determining the source or sources of human capital to
satisfy the organization’s demand.
Waterfall A traditional approach to project management in which the main goals are
established at the outset of the project.
References
Agrawal, R., S.K. Nanda, D. Rama Rao, and B. Rao. 2013. “Integrated Approach to Human
Resource Forecasting: An Exercise in Agricultural Sector.” Agricultural Economics Research
Review 26 (2): 173–184. https://ageconsearch.umn.edu/record/162153.
Bechet, T. P., and J. W. Walker. 1993. “Aligning Staffing with Business Strategy.” Human
Resource Planning 16 (2): 1–16.
Bechet, T. P. 2000. “Developing Staffing Strategies That Work: Implementing Pragmatic,
Nontraditional Approaches.” Public Personnel Management 29 (4): 465–77.
https://doi.org/10.1177/009102600002900405.
Beck, B. M. 1991. “Forecasting Environmental Change.” Journal of Forecasting 10 (1): 3–19.
https://doi.org/10.1002/for.3980100103.
Boudreau, J., R. Jesuthasan, and D. Creelman. 2015. Lead the Work: Navigating a World
beyond Employment. Hoboken, NJ: John Wiley & Sons, Inc.
https://doi.org/10.1002/9781119176282.
Boudreau, J. 2015. “Improving ‘Crowdsourced’ Creativity.” Dr. John Boudreau. September 1,
2015. https://drjohnboudreau.com/improving-crowdsourced-creativity/.
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.
Butinsky, C.F., and O. Harari. 1983. “Models vs. Reality: An Analysis of 12 Human Resource
Planning Systems.” Human Resource Planning 6 (1): 11–20.
Cappelli, P. 2009. “A Supply Chain Approach to Workforce Planning.” Organizational
Dynamics 38 (1): 8–15. https://doi.org/10.1016/j.orgdyn.2008.10.004.
Champion, R., L. D. Kinsman, G. A. Lee, K. A. Masman, E. A. May, T. M. Mills, M. D. Taylor, P.
R. Thomas, and R. J. Williams. 2007. “Forecasting Emergency Department
Presentations.” Australian Health Review 31 (1): 83–90. https://doi.org/10.1071/ah070083.
Cooper, J., and S. Jackson. 2017. Workforce Planning Practices in Canada: Human
Resources Trends and Metrics, Fourth Edition. Ottawa, ON: The Conference Board of
Canada.
Curry, D. 2022. “Peloton Revenue and Usage Statistics (2022).” Business of Apps. Accessed
August 17, 2022. https://www.businessofapps.com/data/peloton-statistics/.
Fine, S.A., and W.W. Wiley. 1971. An Introduction to Functional Job Analysis a Scaling of
Selected Tasks from the Social Welfare Field. Methods for Manpower Analysis No. 4.
Distributed by ERIC Clearinghouse.
Fink, A., B. Marr, A. Siebe, and J. Kuhle. 2005. “The Future Scorecard: Combining External
and Internal Scenarios to Create Strategic Foresight.” Management Decision 43 (3): 360–
381. https://doi.org/10.1108/00251740510589751.
Fulmer, W.E. 1992. "Human Resource Management: The Right Hand of Strategy
Implementation." In Human Resource Planning, edited by D.M. Schweiger and K. Papenfuß.
Gabler Verlag. https://doi.org/10.1007/978-3-322-83820-9_3.
Fulmer, W. 1990. “Human Resource Management: The Right Hand of Strategy
Implementation.” Human Resource Planning 12 (4): 1–11.
Gagliordi, N. 2016. “Walmart Says ‘Basket Economics’ Strategy from Jet Acquisition Will
Fuel Online Growth.” ZDNET. Accessed October 16, 2016.
https://www.zdnet.com/article/walmart-says-basket-economics-strategy-from-jetacquisition-will-fuel-online-growth/.
Grabosky, P., and D. Rosenbloom. 1975. “Racial and Ethnic Integration in the Federal
Service.” Social Science Quarterly 56, no. 1 (June): 71–84.
Government of Canada. 2021. “About the National Occupational Classification Canada.ca.” Noc.esdc.gc.ca. November 30, 2021.
https://noc.esdc.gc.ca/Home/AboutTheNoc.
Government of Canada. 2021a. “Canadian Occupational Projection System.” Figure 2:
(Strong) Employment Growth by Industry, Projection 2019-2028 (Average Annual Growth, in
Percent). Accessed September 7, 2022. https://occupations.esdc.gc.ca/sppccops/content.jsp?cid=49&lang=en#Fig1.
Helton, K. A., and J. A. Soubik. 2004. “Case Study: Pennsylvania's Changing Workforce:
Planning Today with Tomorrow's Vision.” Public Personnel Management 33 (4): 459–473.
https://doi.org/10.1177/009102600403300408.
Hirschman, C. 2007. “Putting Forecasting in Focus,” HR Magazine 52 (March): 44–50.
Hogan. n.d. “The Development of the Hogan Competency Model: Whitepaper.” Accessed
September 6, 2022.
https://info.hoganassessments.com/hubfs/EL_Hogan_Comp_Model.pdf.
Jain, C. 2002. "Benchmarking Forecasting Models." Journal of Business Forecasting, #21,
no. 3 (Fall): pp. 18-20, www.ibf.org.
Lapide, L. 2003. "Organizing the Forecasting Department." Journal of Business Forecasting,
#22, no. 2 (Summer): pp. 20-21, www.ibf.org
Lees, H. 2021. "Agile vs Waterfall: What is the Difference? Which is Best for You?"
TrustRadius. Accessed August 17, 2022. https://www.trustradius.com/buyerblog/difference-between-agile-vs-waterfall.
Logan, B. 2022. “Peloton Attempts to Find Its Footing after High-Profile Blunders.” NBC
News. Accessed August 17, 2022. https://www.nbcnews.com/business/peloton-analysismistakes-layoffs-recalls-challenge-company-leadership-rcna17777.
Mason, D.H. 1994. “Scenario-based Planning: Decision Model for the Learning
Organization.” Planning Review 22 (2): 6–11. https://doi.org/10.1108/eb054457.
McEnery, J.M., and M.L. Lifter. 1987. “Demands for Change: Interfacing Environmental
Pressures and the Personnel Process.” Public Personnel Management 16 (1): 61–87.
https://doi.org/10.1177/009102608701600107.
Meehan, R., and S.B. Ahmed. 1990. “Forecasting Human Resources Requirements: A
Demand Model.” Human Resource Planning 13 (4): 297–307.
Millett, S., and S. Zelman. 2005. “Scenario Analysis and a Logic Model of Public Education
in Ohio.” Strategy & Leadership 33 (2): 33–41. https://doi.org/10.1108/10878570510586838.
Park, S., S. M. Lee, S. N. Yoon, and S. Yeon. 2008. “A Dynamic Manpower Forecasting Model
for the Information Security Industry.” Industrial Management & Data Systems 108 (3): 368–
384. https://doi.org/10.1108/02635570810858778.
Peloton Interactive, Inc. Investor Relations. 2021 Annual Report. Accessed August 17,
2022. https://investor.onepeloton.com/static-files/00bb178b-7b7b-4fdc-97e498caa202c88b.
Perez, S. 2017. “Walmart Launches Free, Two-Day Shipping Without a Membership on
Purchases of $35 or More.” TechCrunch. Accessed January 30, 2017.
https://techcrunch.com/2017/01/30/walmart-launches-free-2-day-shipping-without-amembership-on-purchases-of-35-or-more/.
Ployhart, R., J. Weekley, and J. Ramsey. 2009. “The Consequences of Human Resource
Stocks and Flows: A Longitudinal Examination of Unit Service and Unit
Effectiveness.” Academy of Management Journal 52 (5): 996–1015.
https://doi.org/10.5465/amj.2009.44635041.
Pollack, J. 2007. “The Changing Paradigms of Project Management.” International Journal of
Project Management 25 (3): 266–274. https://doi.org/10.1016/j.ijproman.2006.08.002.
Project Management Institute. 2021. Project Management. Guide to the Project
Management Body of Knowledge (PMBOK® Guide) - Seventh Edition.
https://www.pmi.org/pmbok-guide-standards/foundational/PMBOK.
Pynes, J. E. 2004. “The Implementation of Workforce and Succession Planning in the Public
Sector.” Public Personnel Management 33 (4): 389–404.
https://doi.org/10.1177/009102600403300404.
Rainey, C. 2022. “What Happened to Starbucks? How a Progressive Company Lost Its Way.”
Fast Company. Accessed August 17, 2022.
https://www.fastcompany.com/90732166/what-happened-to-starbucks-how-aprogressive-company-lost-its-way.
Sanchez, J. I., and E. L. Levine. 2012. “The Rise and Fall of Job Analysis and the Future of
Work Analysis.” Annual Review of Psychology 63 (1): 397–425.
https://doi.org/10.1146/annurev-psych-120710-100401.
Schramm, J. 2005. “Planning Ahead.” HR Magazine 50 (1): 152–153.
Schuler, R. S. 1989. “Scanning the Environment: Planning for Human Resource
Management and Organizational Change.” Human Resource Planning 12 (4).
Schuler, R. S., and J. W. Walker. 1990. “Human Resources Strategy: Focusing on Issues and
Actions.” Organizational Dynamics 9 (1): 4–19. https://doi.org/10.1016/00902616(90)90045-Q.
Schwaber, K. and J. Sutherland. 2020. “The Scrum Guide the Definitive Guide to Scrum: The
Rules of the Game.” Scrum Guides. Accessed August 17, 2022.
https://scrumguides.org/docs/scrumguide/v2020/2020-Scrum-Guide-US.pdf.
Starbucks. n.d. “About Us: Starbucks Coffee Company.” Accessed August 7, 2022.
https://www.starbucks.com/about-us/.
Starbucks. 2022. “Supporting Our Partners, Creating a Sense of Belonging.” Starbucks
Stories. Accessed August 17, 2022.
https://stories.starbucks.com/stories/2022/supporting-our-partners-creating-a-sense-ofbelonging/.
Stone, T.H., and J. Fiorito. 1986. “A Perceived Uncertainty Model of Human Resource
Forecasting Use.” Academy of Management Review 11 (3): 635–642.
https://doi.org/10.5465/amr.1986.4306249.
Thesing, T., C. Feldmann, and M. Burchardt. 2021. “Agile Versus Waterfall Project
Management: Decision Model for Selecting the Appropriate Approach to a
Project.” Procedia Computer Science 181: 746–756
https://doi.org/10.1016/j.procs.2021.01.227.
Van Der Heijden, K. 2000. “Scenarios and Forecasting: Two Perspectives.” Technological
Forecasting and Social Change 65 (1): 36. https://doi.org/10.1016/S0040-1625(99)00121-3.
Villanova University. n.d. “Five Phases of the Project Management Life Cycle.”
Villanovau.com. April 13, 2022. https://www.villanovau.com/resources/projectmanagement/5-phases-project-management-lifecycle/#.WOuIlVPytTY.
Walker, J.W. 1980. Human Resource Planning. New York, NY: McGraw-Hill.
Wagner, R., S. Hlavacka, and L. Bacharova. 2000. “Slovakia’s Health System: Hospital
Human Resource Planning in Slovakia.” Journal of Management in Medicine 14 (5/6): 383–
407. https://doi.org/10.1108/02689230010363007.
Yahoo Finance. 2022. “Peloton Interactive, Inc. (PTON) Stock Price, News, Quote & History Yahoo Finance.” ca.finance.yahoo.com. August 24, 2022.
https://ca.finance.yahoo.com/quote/PTON?p=PTON&.tsrc=fin-srch.
Zaleznik, A. 1977. “Managers and Leaders: Are They Different?” Harvard Business
Review 55, no. 3 (May): 67–78.
Credits
[1] Image by Ryoji Iwata on Unsplash
[2] Image by Antoni Shkraba CC0
[3] Image by fizkes/Shutterstock.com
[4] Video courtesy of Global News/YouTube
[5] Image by Yulia Mozes/Shutterstock.com
[6] Image by SamaraHeisz5/Shutterstock.com
[7] Image by FellowNeko/Shutterstock.com
[8] Image by Camille Chen on Unsplash
[9] Image by Ground Picture/Shutterstock.com
[10] Image by fizkes/Shutterstock.com
[11] Image by Nubelson Fernandes on Unsplash
[12] Image by Jacob Lund/Shutterstock.com
[13] Image by Jason Goodman on Unsplash
[14] Video courtesy of Scrum.org/YouTube
[15] Image by Andrey_Popov/Shutterstock.com
[16] Image by panuwat phimpha/Shutterstock.com
[17] Image by Rawpixel.com/Shutterstock.com
[18] Image by gofra/Shutterstock.com
[19] Image by photocritical/Shutterstock.com
[20] Video courtesy of ABC News/YouTube
[21] Image by Phovoir/Shutterstock.com
[22] Image by Juice Verve/Shutterstock.com
Case Study: Forecasting Human Capital Demand at
Loblaw
From the case study in Chapter 3, Loblaw Environmental Analysis, we know that Loblaw
Companies Ltd. (Loblaw) operates in the market segment that focuses on customer
service. We also know from the Chapter 2 Case Study, Human Capital Strategy at Loblaw,
that part of Loblaw's value proposition is to be the best in food, health, and beauty. Some
of the activities that push Loblaw toward implementing this value proposition include
delivering fresh food selection, competitive value, and customized assortments across
label banners. The value proposition is further supported by high-quality health and
wellness products and services. The core values to be upheld in performing these actions
include "being authentic, building trust, and making connections" (Loblaw Companies Ltd.
2021, 6).
Together, these firm attributes give insight into Loblaw's strategy and HR strategy.
Table 4.1 shows the typical jobs in a grocery store and job levels. In addition to the in-store
jobs, Loblaw would have several corporate level jobs that support the retail stores. These
corporate support jobs include functions such as accounting, marketing, HR management,
franchise sales, store site allocations and management, supplier management and
relations, product development and management, and public relations.
Based on the case in Chapter 1, you should now have a good idea about Loblaw's retail
supermarket strategy. From the Chapter 2 case, you know what kinds of organization-level
tasks or actions are most important in delivering that strategy to customers, and you know
what kinds of human capital knowledge, skills, abilities, and other attributes (KSAOs) or
competencies are required to fulfil those important organizational tasks. The Chapter 3
case study, Loblaw Environmental Analysis, helped you to uncover the environmental
influences that have the potential to have the greatest impact on Loblaw's strategy.
Develop a list of the strategic human capital KSAOs/competencies that are critical for
Loblaw to have in order to continue to deliver its value proposition in the near future.
Table 4.1 Typical Grocery Store Jobs and Job Levels
Supermarket Job
Job Level
Custodian
1
Shopping Cart Attendant
2
Bagger
3
Food Preparation Worker
4
Bakery Assistant
5
Floral Assistant
5
Stock Clerk
6
Cashier
7
Customer Service Representative
7
Overnight Stock Clerk
7
Assistant Store Manager
8
Bakery Manager
8
Butcher
8
Inventory Control Manager
8
Loss Prevention Manager
8
Pharmacy Technician
8
Seafood Manager
8
Store Manager
9
Pharmacist
10
Table 4.1 Typical Grocery Store Jobs and Job Levels
Case Study Question 4.1
Prioritize the organzational tasks/activities that are most important to succesfully
delivering Loblaw's strategy, given what you know about the environmental influences on
the firm's future outlook.
Case Study Question 4.2
Based on the prioritized list of organizational tasks/activities, prioritize the human capital
KSAOs or competencies that are key to delivering the strategy.
Case Study Question 4.3
In what jobs would each of these strategic KSAOs/competencies belong? If you do not see
a job title for one or more of your strategic KSAOs/competencies, place the job in one of the
broader functional levels of the organization, and give it a logical job title.
Case Study Question 4.4
Using your prioritized list of KSAOs/competencies, can you highlight one or more
KSAOs/competencies that are made more valuable by further developing it as firm-specific
human capital? Can you highlight one or more KSAOs/competencies that are good
examples of generic human capital?
References
Loblaw Companies Ltd. 2021. “Check out Loblaw Financial Reports.” www.loblaw.ca.
2021. https://www.loblaw.ca/en/investors-reports. 6.
Chapter 5: Determining HR Demand
Figure 5.1 Forecasting the demand for human capital requires an understanding of the
firm's strategic requirements. [1]
Learning Outcomes
L.O. 5.1 Understand what HR forecasting is, and its strategic importance to the firm.
L.O. 5.2 Understand when to apply quantitative methods such as trend/ratio analysis, time
series models, correlation, regression, structural equation modelling, or a categorizationbased or prediction-based machine learning model.
L.O. 5.3 Describe the various qualitative forecasting methods including scenario planning,
Delphi technique, nominal group technique, and HR budgets and staffing tables, and the
situations in which they are most effective.
L.O. 5.4 Understand how quantitative and qualitative models can be combined in tandem
or using simulations to produce more informative forecasts.
Introduction
The Great Resignation
Over the long term, the demand for labour in Canada is expected to increase. However, by
2036 the aging Canadian population is expected to lead to a decrease in the labour force
participation rate. In the 1980s, there were six working Canadians for every non-working
Canadian over the age of 65. By 2017, this ratio declined to four people in the labour force
for every person not in the labour force above the age of 65, and by 2036 the ratio is
expected to further fall to less than three workers for every non-worker over the age of 65.
This decline may be offset to some extent by an increase in the number of workers in the
labour force born outside of Canada.
The COVID-19 pandemic introduced significant changes to the global labour landscape.
Many of the changes that resulted from the pandemic have yet to be fully understood. For
example, the labour force in the United States has seen a large increase in resignations
from full-time workers since 2020, but the same phenomenon has not been observed in
Canada. The majority of the resignations occurring in the U.S. labour force are in the
hospitality and retail sectors, where the effects of the pandemic have been very strong.
These industries have not yet returned to pre-pandemic levels, and industries such as
technology are growing rapidly. While it is too soon to tell, it is possible that American
workers are leaving jobs in hospitality and retail to retrain for industries with a more
promising future.
In Canada, the employment gains in the labour force have been driven by increases in fulltime work, and a decrease in part-time work. The downward pressure in labour force
participation in Canada that is coming from the aging population will be offset to some
extent by increased participation from visible minorities and immigrants to Canada.
However, current projections suggest that by 2050 less than 60 percent of Canadians will
be of working age (between the ages of 15 and 64) (Heaven 2022), and the immigration rate
may not be sufficient to fill the projected employment gap. Employers that are better able
to attract and retain visible minorities, Indigenous peoples, neurodiverse workers, and
older workers will be more successful in fulfilling their firms' HR planning requirements.
Refer to Video 5.1 to learn more about the labour supply issues.
Video 5.1 The Great Resignation [2]
Sources: Martel (2019); U.S. Bureau of Labor Statistics (2022); Statistics Canada (2022);
Lundy (2021)
5.1 Forecasting Demand
HR demand refers to the firm’s future need for human capital, and to the types of jobs and
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 (read Chapter 9, Change Management, 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
requirements interact with other jobs within the firm. Therefore, the demand question
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 (Figure 5.2),
the answer to this demand question is potentially complicated and error prone.
Figure 5.2 Uncertainty around the technology and a new market segment can make it
challenging for companies like Hyundai to forecast the demand for human capital to
produce new electric vehicles. [3]
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 probably more
straightforward than doing so at an electric car manufacturing facility. Because of the
variety in the complexity and levels of uncertainty in forecasting the demand for labour,
multiple forecasting methods exist. 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.
5.1.1 The Role of Job Analysis in Forecasting the Demand for Labour
There are several forces in the workplace today that are changing the way work is
organized. The pace of change in the workplace coupled with the organizational need for
agility, and the increased specialization of certain types of work are all putting pressure on
the concept of the job. The job is being broken apart into more loosely organized groups of
tasks, and many tasks are being taken out of the job altogether and performed by
specialized workers or outsourced to the gig economy. This is referred to by some scholars
as "fluid work," and it is evidenced in the workplace by the increased use of gig workers,
contractors and other forms of outsourcing of tasks, consultants for specialized tasks,
part-time workers, and job-sharing practices (Boudreau 2020). However, even though the
job may be dissolving in some respects, the practice of job analysis still allows the
organization to codify the knowledge, skills, abilities, and other attributes (KSAOs)
necessary for the organization to deliver its value proposition. A job analysis provides the
organization with a prioritized list of duties, tasks, and the KSAOs required to perform those
tasks. This is the first step in assessing the demand for labour, as it gives the organization a
valid and reliable understanding of what work needs to be done. From a planning
perspective, the next critical question to answer is how many people will be required to
perform the necessary tasks.
5.1.2 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 consequently 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.
5.1.3 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 production and
consequently the demand for labour will change seasonally. Rather than basing 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 (customers,
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 observations, it
may be possible to increase the consistency of forecasts. 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 5.4.1: Differences between Qualitative and Quantitative Forecasting Data, 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.
5.2 Quantitative Methods
Table 5.1 summarizes the quantitative forecasting methods to be discussed.
Table 5.1 Quantitative Forecasting Methods
QUANTITATIVE METHODS
DATA
Trend/Ratio Analysis
Time Series Models
•
This uses historical changes to predict future
human capital needs.
•
These models use past data to predict future
demand.
•
Time series models are especially useful for
capturing seasonality in data (such as a
December rush on sales and a summer
slump).
•
This method describes the strength of a
relationship between two variables (for
example, job satisfaction and job
commitment, or sales and number of
employees).
•
This shows a linear relationship or trend
between one or more predictor variables and
an outcome variable.
•
A regression analysis allows the user to
predict the outcome based on known values
of the predictor variables.
•
This modelling shows the relationships
between multiple predictor and outcome
variables.
•
SEM is useful for examining more complex
models with more variables than regression
models.
•
This finds patterns in large amounts of data
(for example, Amazon customer product
reviews).
•
Machine learning can make use of many
more variables than regression or SEM, and
can be used to predict a particular outcome,
or identify categories among large amounts
Correlation
Regression Analysis
Structural Equation Modelling
(SEM)
Machine Learning and
Artificial Intelligence (AI)
•
Categorization-Based
•
Prediction-Based
•
Neural Networks
•
Random Forests
of data.
5.2.1 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 5.3 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 (Elbo 2000, 1–3; Cascio 1991; Ward 1996, 54–55). 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 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). Table 5.2 in HR Planning Notebook 5.2.1 shows an example of ratio
analysis. There are five steps to conducting an effective ratio analysis.
1. Step 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. Step 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. Step 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 for exactly the same period used for the operational index in Step 2.
4. Step 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. Step 5. Calculate the Forecasted Demand for Labour. Divide the annual forecast
for the operational index by the average employee requirement 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 (Figure 5.4).
Figure 5.4 By estimating
output, managers can predict labour inputs that are needed. [4]
HR Planning Notebook 5.2.1: Ratio Analysis: Puslinch Pottery
Table 5.2 Puslinch Pottery Ratio Analysis
Operational Index
Employee Requirement Ratio
Year Sales
Number of Employees
(Sales per Employee)
($ Thousands)
2017 2,800
155
18.06
2018 3,050
171
17.83
2019 3,195
166
19.25
2020 3,3001
177
18.64
2021 3,500
1882
18.643
2022 3,600
1934
18.64
2023 3,850
2075
18.64
The initial forecast is developed based on 2020 actual data. We are forecasting labour
demand for 2021, 2022, and 2023, and therefore sales figures for those years are future
estimates.
2
Employee numbers are historical, except for the figures for 2021, 2022, and 2023, which
are our future HR demand forecasts. Now that the employee requirement ratio has been
1
established from 2020, we can use it and the expected sales from 2021 to establish the
future required number of employees. In 2021, the required number of employees will be
3,500/18.64 = 188 employees (rounded to the nearest whole number).
3
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 2020 was
used for forecasting.
4
3,600/18.64 = 193 (rounded to the nearest whole number)
5
3,850/18.64 = 207 (rounded to the nearest whole number)
5.2.2 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 the previous
December’s total sales, or a ratio of sales to total hours worked as an estimate for this year.
The ratio analysis in HR Planning Notebook 5.2.2 is a form of time series design that uses
the data from the current year (period) to predict the 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 past two or
three periods as the estimate for future demand.
HR Planning Notebook 5.2.2 shows an adaptation of the trend analysis in Notebook 5.2.1
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 importance 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).
HR Planning Notebook 5.2.2: Time Series Analysis: Puslinch Pottery
Table 5.3 Time Series Analysis
Year Operational
Actual
Actual Employee
Forecast
Index Sales
Numbers of
Employees
Required
Requirement Ratio
(Three-year Moving
Average)
Number of
Employees
Required
2017 $2, 880
151
18.06
2018 $3,050
171
17.83
2019 $3,195
166
19.25
2020 $3,300
177
18.64
2021 $3,500
185
18.82 (18.57)6
188
2022 $3,600
200
18.00 (18.90)7
190
2023 $3,850
210
18.30 (18.49)8
208
three-year moving average = (17.83 + 19.25 + 18.64)/3
three-year moving average = (19.25 + 18.64 + 18.82)/3
8
three-year moving average = (18.64 + 18.82 + 18)/3
6
7
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 variable 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 preferences, 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 (Al-Subhi Al-Harbi 2000, 47–55; Meehan and Ahmed
1990, 297–307). These models typically depend on large amounts of reliable data.
5.2.3 Correlation
Correlation is used to describe the relationship between two variables. Correlation can be
used to describe the strength of the relationship between SAT scores and undergraduate
GPA, or between conscientiousness and job performance, or between job satisfaction and
turnover, or between the number of employees working on the sales floor of a department
store and store sales. All these examples might range from a strong positive relationship,
where changes in one variable such as SAT scores are associated with similar changes in
the other variable, which in this case is undergraduate GPA, to a strong negative
relationship, where an increase in one variable associates with a decrease in the other
variable, such as how higher job satisfaction associates with lower turnover. If there is no
relationship between two variables (for example, if changes in job satisfaction are not
expected to have any association with changes in cognitive ability) then the correlation is
zero. Thus, correlation describes the strength of the association between two variables,
and it can range from 1, which represents a perfect positive relationship, to negative 1,
which represents a perfect negative relationship.
Correlation can be viewed in data by looking at a scatterplot. A scatterplot shows one
variable on the x-axis (the horizontal axis) and the other variable on the y-axis (the vertical
axis). Imagine that you have completed a survey that measures your level of job
satisfaction and your level of organizational commitment. You and every other participant
in the survey will have an observation for the measure of job satisfaction and an
observation for the measure of commitment. Figure 5.5 offers a depiction of
correlation. Each dot in the scatterplot represents a pair of values for each subject. For
example, if job satisfaction is placed on the x-axis and organizational commitment is on the
y-axis, each participant would represent a dot where the position of the dot on the x-axis
represents that participant's score for job satisfaction, and the position of the dot along the
y-axis represents that same individual's score for organizational commitment. Together, the
dots demonstrate whether or not job satisfaction and commitment show a correlation in
this sample of participants.
Figure 5.5 Scatterplots are useful for visually spotting trends in data, and can provide a
good sense of whether a model (such as a regression line) fits the data. (Magnusson 2022)
[5]Long Text Description
Shared Variance
Correlation provides information around the direction and strength of the association
between two variables. The concept of shared variance allows us to understand how much
of one variable can be predicted by the other variable. Shared variance is simply the
correlation coefficient squared; and since a correlation coefficient is a number between -1
and 1, the shared variance, or R2, is a smaller number than the correlation coefficient
(unless the correlation coefficient is exactly -1 or 1). The interpretation of the shared
variance is the amount of variance in one variable that can be predicted by the other
variable. If the correlation coefficient between job satisfaction and organizational
commitment is 0.3 (that is, r = 0.30), then the shared variance is R2 = (0.3)2 = 0.09, and the
interpretation is that 9 percent of the variability in organizational commitment can be
predicted by job satisfaction. This also means that 90 percent of the variability in
organizational commitment may be predicted by other things and not by job satisfaction.
The bubbles in Figure 5.5 above show the amount of shared variance (that is, R2) between
two variables based on their correlation.
5.2.4 Regression Analysis
Regression analysis extends the idea of correlation in several important ways. First, while
correlation describes the strength of a relationship in values that range from -1 to 1,
regression describes the strength of a relationship in the same values as the actual
variables, which permits a more straightforward interpretation. Second, regression can
integrate the combined effects of multiple variables on another variable. In other words, if a
practitioner was interested in predicting the number of employees required based on sales
amounts and production amounts together, regression can provide the amount of variance
in the required number of employees that is predicted by these two variables (sales and
production) combined.
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
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
(refer to HR Planning Today 5.2.1 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.
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 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 in Figure 5.6. It does this by
drawing the line that reduces the sum of the distances between each point on the
scatterplot and the line. Positive and negative distances from the line can cancel one
another out. Regression therefore squares the distances from the line so that all distances
are positive. The slope of that line represents the amount of change in the outcome
variable resulting from a one-unit change in the predictor variable. By travelling up or down
that trend line, we can predict the number of employees required for a given level of sales.
Figure 5.6 Trend LineLong Text Description
HR Planning Today 5.2.1: Regression in Action
To get a sense of how regression may be used, we will take a very simple fictional case of a
motorcycle manufacturer. Lacrosse Motorcycles represents the rejuvenation 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 production, sales, and the numbers of full-time equivalent employees
working during each of those quarters, we would like to forecast the company’s demand for
employees as it grows (refer to Table 5.4).
Table 5.4 Regression Analysis Data
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
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 performing a regression analysis using production as the only predictor of
employees. The resulting plot of our data including the regression trend line is shown in
Figure 5.7.
Figure 5.7 A Regression Trend Line Using Production As The Only Predictor Of Employees
The equation for the trend line, which we get from our statistics package, looks like this:
Employees = 27.3 + (1.3) × 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 interpreted as meaning that for every oneunit 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 = 27.3 + (1.3) × 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. However, 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 in our regression. The results of this statistical analysis are as follows:
Employees = 19.82 + (0.97) × production + (.22) × sales
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 $1,000), 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. How does this compare to our earlier (and simpler) model? This model
predicts .5 percent 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, which uses production as
a single predictor of employees.
Now You Try It!
Let's replicate the regression analysis in HR Planning Today 5.2.1 on your computer.
Download Jamovi. It's free and intuitive to use, and there is a cloud-based version if you are
using a mobile device and cannot access a computer. Once installed and opened on your
computer, click on the data tab at the top. Copy and paste or manually enter the data
provided in Table 5.4, Regression Analysis Data, into the data section. Where Jamovi lists A,
B, and C as column names at the top of the data, click on these letters, and change the
names (for A, enter "Sales"; for B, enter "Production"; and for C, enter "Employees").
Now that the data has been entered and named, let's create a scatterplot with a trend line.
Click on the "Analyses" tab at the top of the page, and then the "Exploration" tab. Within the
"Exploration" submenu, click "Scatterplot" and click "Production" over to the x-axis and
"Employees" to the y-axis. Where it says "Regression line," click "Linear" to get a straight
trend line through the data. The resulting plot will show the linear trend between
production and the level of employees. To quantify this relationship, click the "Regression"
box at the top of the page and select "Linear Regression." Click "Employees" as the
dependent variable, and "Production" as the covariate. Jamovi will provide the output for
the regression, which should be very close to the results shown in HR Planning Today 5.2.1.
For more on how to use Jamovi and perform and interpret statistical analyses,
read Learning Statics by Jamovi: A Tutorial for Psychology Students and Other
Beginners (Navarro and Foxcroft 2022).
Video 5.2 presents an online tutorial to take you further into learning how to use Jamovi.
Video 5.2 Jamovi Tutorial [6]
When a regression includes two independent variables (for example, sales as well as
production volume), another axis is added as in Figure 5.8, and the regression line
becomes a three-dimensional regression plane. A regression can include as many
variables as make sense for the model in order to explain more of the variance in the
outcome variable, although the model becomes more complex. 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 variables to predict as much
variability in the criterion as possible. Predictors that are highly correlated with each other
should be avoided, and if the model contains more than six–eight predictor variables, it
might be better to use a different kind of analysis (like structural equation modelling or a
big data technique).
Figure 5.8 Three-dimensional Regression PlaneLong Text Description
When developing a model, Meehan and Ahmed (1990, 297–307) suggest grouping possible
predictor 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, JAMOVI, 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 service
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 amounts 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.
Limitations of Regression
While regression models can be highly useful forecasting tools, like any powerful tool,
statistical regression has its limitations.
•
Unsuitable for nonlinear relationships. A primary limitation of regression models
is 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 5.9, which is a fictional example showing that as sales
increase, the number of required employees at first increases linearly, but that the
rate of increase then 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 these highly
unstable markets.
•
Large amounts of historical data are required. 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 observations
becomes larger.
Figure 5.9 When relationships are nonlinear, regression becomes an unreliable and
potentially misleading tool for prediction.Long Text Description
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.
5.2.5 Structural Equation Modelling
Structural equation modelling (SEM) can be thought of as a process similar to regression,
except that 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 variables 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 5.10 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.
Figure 5.10 Structural Equation ModelLong Text Description
5.2.6 Machine Learning and Artificial Intelligence (AI)
One of the largest potential benefits of artificial intelligence and machine learning tools is
the ability to find patterns in large amounts of data that would otherwise not be detectable.
For example, machine learning tools can make use of large amounts of text, such as
customer feedback comments on a website like Amazon.com to discover the product
features that are most valued about a product, to diagnose product failures, or to learn
about features that customers would like to have in future iterations of the product.
Machine learning can also be used to track inventory and delivery location data from GPS,
customer transaction data, customer movement within retail stores, or employee digital
footprint data. Organizations are now able to collect enormous amounts of information
about customers, processes, and employees, and machine learning can help to make
connections within and between these areas. As shown in Figure 5.11, the two primary
forms of machine learning tools are categorization methods and prediction methods.
These tools essentially either categorize information based on patterns of similarity, or
predict outcomes from within the data.
Figure 5.11 Categorization methods and prediction methods are the two main forms of
machine learning tools.Long Text Description
Categorization-Based Machine Learning Methods
Figure 5.12 A machine learning analysis of the length and width of petals on a large number
of Iris flowers could lead to the identification of different categories of Iris species that are
not otherwise easily detected. [7]
These methods sort data into categories based on similarity. They often do not depend on a
particular outcome that is to be predicted from the data. Rather, the analyses attempt to
find patterns of similarity among the variables in the data, and are therefore called
unsupervised methods. For instance, a botanist might record the lengths and widths of the
petals for a large number of Iris flowers, depicted in Figure 5.12. The analysis will seek to
find patterns of similarity based on petal length and width, and will identify whether there
are multiple species of Iris flowers in the data.
Categorization-based machine learning methods may be useful to identify patterns among
employee data as well. For example, a retail coffee shop could use data on its baristas'
choices for what time of day they prefer to work shifts, how long a shift they like to work,
how many years they have worked for the company, and the total number of hours worked
per week to analyze whether or not there are different employee segments within this
particular job. Figure 5.13 presents an example of how length of shift and organizational
tenure might be used to sort and identify different employee segments among baristas.
Such information may be used to attract job seekers from each of these segments and plan
work schedules using knowledge about the preferences from each of these segments.
Chapter 6, Ascertaining HR Supply, includes more information about how employee
segmentation may be used to aid in the supply of human capital.
Figure 5.13 The length of a shift and organizational tenure can be used to segment casual,
part-time, and full-time employees.
Prediction-Based Machine Learning Methods
The section on regression analysis has already introduced you to prediction-based
methods, where a set of variables (which we can also call features) are chosen as
predictors of the outcome variable. Many prediction models are called supervised models
because the analysis is based on the prediction of a particular outcome. Prediction-based
learning methods learn using existing data. If the outcome is known, the algorithm uses the
existing data to predict the outcome. This is the learning portion of the model, where the
algorithm learns how to correctly predict the outcome. A portion of the data is withheld
from this stage so that it can be used later to validate the model. At the validation stage, the
model is used on these new data to predict the outcome, and the accuracy of the
prediction model can be tested by examining the proportion of correct predictions made by
the model.
Some of the features in a prediction model may be strong predictors of the outcome
variable, and other features may not. However, where regression is limited to the use of
relatively few features (that is, usually fewer than 10 variables) to predict the outcome,
supervised machine learning methods can use many features. This is particularly useful
with the variety and volume of data that organizations can now utilize, as supervised
machine learning methods can make use of hundreds of features to predict the outcome
variable. There are many different types of prediction models, some of which have
interesting names.
Neural Networks
Neural networks are named for their resemblance to the structure of the neural pathways
in our brains. Neural networks are made up of many nodes, where a node is a point at
which information arrives and is acted upon before being passed on as another piece of
information for another node. For example, when prioritizing work tasks, information
relevant to the decision such as the complexity of the tasks, the estimated amount of time
a task might take, the extent of involvement from other people or resources, and other
information might come from one or more nodes to a decision node around when to
schedule one particular task over another. The blend and relative weight of variables to
consider to make the best decision for how to use one's time comes with familiarity with
making such a decision, and in time a person learns how to make this decision most
effectively. The algorithm for a neural network works in much the same way; it builds a
neural network of nodes based on the information that it has been given in order to produce
the desired outcome. The network is then tested on new data to discover how well the
network predicts the outcome on the new data. As more data is received, the algorithm
refines its network to improve prediction. Figure 5.14 depicts the similarities between the
neural pathways in the human brain and a neural network. Neural networks can involve
many variables and deal with multiple simultaneous pathways and outcomes. This may be
quite useful for organizational planning, where workforce planning is embedded in an
overall planning process that also incorporates production, marketing, and finance.
Figure 5.14 Neural Pathways in the Human Brain and Neural Networks [8]
Random Forests
Like all forests, random forests begin with a single tree. A prediction tree begins with a
single variable that is randomly selected from all possible predictor variables in the data;
this is the root of the tree. In Figure 5.15, the single variable (or root) is cognitive ability. This
variable is then divided into two levels at the point that maximizes the difference in the
outcome variable. (The numbers refer to the predicted values of the outcome variable
[performance] based on the paths taken through the prediction tree.) For example, if the
root variable is conscientiousness as a predictor of job performance, then the
conscientiousness variable will be divided into two levels at the point that maximizes the
difference in job performance between these two levels. The analysis continues by adding
another level (or branch) to the tree, which is simply another predictor variable that has
been randomly chosen from the data by the software. The analyst decides how many
branches each tree should have, and the process continues until all the branches have
been added to the tree. The completed tree shows how individuals are expected to score in
terms of job performance based on their score on each of the predictors in the tree.
However, this tree was built using only a few of the total number of variables in the data,
and the variables were chosen at random. What if a different set of predictor variables
would make a better prediction? Rather than using a single tree, random forests build a
model based on many trees, where each tree is based on a randomly selected group of
predictors. In the end, the model is based on the average of the results of all the trees in the
forest.
Figure 5.15 The tree from a random forest model begins with a single, randomly-selected
variable.Long Text Description
An advantage to random forest models is that they take advantage of the diversity of the
variables in the data. A disadvantage to random forest models is that it is very difficult to
know in the end which predictors are the most important or influential variables in
predicting the outcome. The model would only show the analyst what the expected score
would be for each individual based on their responses to each of the predictor variables in
the data.
There are many different types of supervised and unsupervised machine learning methods.
The common aspects of machine learning models in general are that they learn by being
trained on data where the predictors and the value of the outcome are already known, and
then validated against a portion of the data that was withheld from the training stage. This
ensures that the algorithm is predicting with a high degree of accuracy and that the
algorithm has not been over-trained on the data. This is partly why the validation stage is so
important when developing a machine learning model.
There are hundreds of machine learning methods, with more being developed all the time.
Often, a data scientist will apply many different models on a set of data to find out what
model does the best job of accurately predicting a desired outcome. We have taken a brief
look at machine learning models that categorize data to help uncover underlying structures
within the data, and models that predict outcomes, to help identify trends and
associations among data. As technology continues to drive down the cost of capturing
data, the amount of data available has been increasing rapidly. Tools such as machine
learning and artificial intelligence are becoming indispensable as aids to sifting and sorting
through the growing mountains of data for knowledge. Learn more about the benefits of
machine learning and artificial intelligence in HR Planning Today 5.2.2.
HR Planning Today 5.2.2: Machine Learning in Action
One of the great benefits of machine learning is that it can integrate a great deal of data
from across different areas of the organization, and arrive at a more comprehensive,
holistic solution than if planning was done in different areas at different times (Figure 5.16).
For example, it would be ideal to model the organization's need for employees in all jobs
given an expected level of production, and to incorporate estimates of employee turnover
in a given period, how many will be needed for recruitment, what levels of promotion are
most appropriate, and how much training to provide in order to meet those production
needs. Researchers who attempt to model these types of problems have discovered that it
is very difficult to do, since the inputs to these pieces of information can vary between
companies for many reasons. After all, it is more difficult to predict the actions of people.
Figure 5.16 Artificial intelligence is transforming work processes throughout organizations.
[9]
One example of how machine learning can be used to integrate processes across the
organization is demonstrated in a simulation study performed in 2022. This study modelled
the maintenance needs of a factory production system along with the technical skills
required for that maintenance. The researchers were able to determine the optimum level
of job training, hiring, and promotion rates necessary to keep the assets used for
production in proper working condition while at the same time weighing the competing
costs of maintaining the system, the workforce costs, and the costs of delayed production
due to malfunction (Akl et al. 2022, 108175).
In another, more focused study, researchers were interested in identifying the attributes
that associate with turnover intentions among U.S. federal employees. Using a survey with
a large sample size of almost 6,000 workers, the analyses helped to identify a set of
attributes that associated with individuals who have lower turnover intentions, including
job satisfaction, satisfaction with opportunities for promotion, loyalty, and job tenure
(Kang, Croft, and Bichelmeyer 2020, 538–558).
IBM uses artificial intelligence and machine learning in a different manner from either of
the studies listed above. IBM assesses employee skills based on the passive observation of
employee communications and work. The machine learning then recommends
development and training opportunities to employees to strengthen skills and fill in gaps
(Moore and Bokelberg 2019, 52–55).
These examples demonstrate the varied ways in which machine learning and artificial
intelligence can be used to facilitate the planning process in organizations. The key to
deriving the greatest benefit from these analytical tools lies in understanding what are the
most important questions to ask, and what variables or processes are of the greatest
importance in answering these questions. In other words, the benefits of big data
techniques will be realized by bridging the skills from multiple disciplines such as data
scientists, market researchers, operations experts, and HR professionals (Oswald,
Behrend, Putka, and Sinar 2020, 505–533).
5.3 Qualitative Forecasting Techniques
Quantitative models can be very useful, especially in mature industries or where
environmental 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 (Ward 1996, 54–55).
5.3.1 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 (Cooper and Jackson 2017).
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 Tetlock (2005)
in his book Expert Political Judgment: How Good Is It? How Can We Know?, is that experts
are very often wrong. However, James Surowiecki (2005) finds that groups of people are
very often correct. Qualitative forecasting methods such as the Delphi technique and
nominal group technique (NGT) 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 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. In HR Notebook 5.3.1, learn about how organizations can broaden
their applicant pools and develop a competitive advantage through their HR practices.
HR Planning Notebook 5.3.1: Diversity and Demand
The rate of growth in participation in the Canadian labour force for women and visible
minorities is expected to outpace 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 important for firms to develop diversity plans. Furthermore, Canada’s
Employment Equity Program requires that all federally regulated firms (which include
banks, telecommunications 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
incorporate demand estimates for increasing participation among Canada’s designated
groups (Figure 5.17). 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.
Figure 5.17 The workplace should reflect the community in which the firm is embedded.
[10]
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.
Figure 5.18 shows that the labour market availability of women, Indigenous peoples,
members of visible minorities, and persons with disabilities has risen in Canada over the
past two decades. Organizations that can appeal to these groups are in a position to
broaden their applicant pools and further develop a competitive advantage through their
HR practices.
Figure 5.18 Labour Market Availability of Designated Groups, 1996 and 2016 (Employment
and Social Development Canada. 2020)
Source: Thomas and Ely (1996, 79–90)
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 (Anonymous 2005, 10–11; Gatewood and Gatewood 1983, 83–94). 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 organization’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 and 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 staff members, industry spokespersons, and others possess
detailed knowledge of specific 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
legislation 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,
and economic development, as well as Statistics Canada, can provide expert information
for the labour demand forecasting process. Interviews, questionnaires (conducted in
person or by mail or email), and 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.
5.3.2 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 planning
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 factors 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 (refer to Figure 5.19)
by stretching one group along a continuum from its extreme negative condition to its
extreme positive condition on the x-axis, and stretching 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.
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.
Figure 5.19 Scenario planning is often used to develop organizational strategy.Long Text
Description
The process of describing each of the proposed worlds helps participants to understand
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 for 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 (Korte and Chermack 2006, 645–656).
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
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 percent),
realistic or most likely (e.g., sales levels will increase by 5 to 10 percent), or pessimistic
(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, pre-planned demand estimates when circumstances rapidly change.
5.3.3 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 (Passmore, Cebeci, and
Baker 2005, 33–49; Luthans 1992). This forecasting technique is “a carefully designed
program of sequential, individual interrogations (usually conducted through
questionnaires) interspersed with feedback on the opinions expressed by the other
participants in previous rounds” (Helmer 1999, 47–58). Its key feature is that once a group
of experts is selected, the experts do not meet face to face (Passmore, Cebeci, and Baker
2005, 33–49; Fusfeld and Foster 1971, 63–74). Instead, a project coordinator canvasses
them individually for their input and forecasts by means of a progressively more focused
series of questionnaires.
•
Advantages. 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 (Loo and
Thorpe 2003, 824–825; Hampton, Summer, and Webber 1987; Milkovich, Annoni,
and Mahoney 1972, 381–388; Milkovich and Mahoney 1978, 19–30). 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 (Bramwell and Hykawy 1999, 47–58).
•
Disadvantages. 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 (Loo and Thorpe 2004, 88–97;
Chan et al. 2004, 31–56; Meehan and Ahmed 1990, 297–307). 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 (Bramwell and
Hykawy 1999, 47–58).
Figure 5.20 highlights the six steps associated with using the Delphi technique for HR
demand forecasting.
Figure 5.20 Delphi Technique for HR Demand Forecasting
1. Define and Refine the Issue or Question. During this stage, a project coordinator
is assigned, and they work 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 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 typically range
between seven and 15 (Sobaih, Ritchie, and Jones 2012, 886–906). Next, given that
in many cases the group of experts will include individuals who are not members of
the organization, 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 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 predetermined 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 predetermined 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.
HR Planning Today 5.3.1 provides more details on the Delphi technique.
HR Planning Today 5.3.1: The Delphi Technique in Action
The Delphi technique is used in a wide variety of applications for HR forecasting. For
example, an agricultural research organization started by deriving nine organizational core
competencies from interviews and internal organizational documentation. The experts
were identified 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, and
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. Thirtythree expert chefs were involved in the Delphi undertaking, and they were asked questions
concerning
1. factors differentiating successful from less successful research chefs,
2. knowledge and skills required by successful research chefs, and
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, terrorist attacks on the United States, the
Delphi technique was used by the government and insurance and risk managers 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.
Sources: Guimaraes et al. (2001, 249–255); Birdir and Pearson (2000, 205–209); Coffin
(2000, 8–9)
5.3.4 Nominal Group Technique
Figure 5.21 Expert opinion can be used to prepare estimates. [11]
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 demand
estimates (idea generation) have been publicly tabled, or written on a flip chart, without
discussion (Figure 5.21) (Fraser and Fraser 2000, 228–243; Van de Ven 1974). 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 support of estimates presented in the group forum (Rohrbaugh 1981, 272–
288). 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 (Fraser 2000, 29–36;
Delbecq, Van de Ven, and Gustafson 1975; Green 1975, 63–73). 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 individuals to dominate the process (Roeden,
Maaskant, and Curfs 2012, 588–593).
Refer to HR Planning Today 5.3.2 for more information on the NGT. Readers are invited to
experience a nominal group technique as part of a group exercise at the end of this chapter.
HR Planning Today 5.3.2: 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 sessions, 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
sessions investigating teaching performance competencies on 13 dimensions (technical
knowledge, planning and organizing, managing interaction, commitment to teaching
objectives, proactive orientation, student development orientation, 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 NGT will replace focus
groups as the qualitative research method of choice and will reduce the need for the
administration of surveys.
Sources: Andersen and Fagerhaug (2000, 144–145); Langford, Schoenfeld, and Izzo (2002,
58–70)
5.3.5 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. Table 5.5 provides a hypothetical example for the firm
“Ennotville Eateries” (McBeath 1992). 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 Statistics Canada.
Table 5.5 Staffing Table and HR Budget, Ennotville Eateries
Staff Demand
Requirements
Sales ($1–10 Sales ($10–
million)
25 million)
Sales (>$25–
50 million)
Sales (>$50–
75 million)
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
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
Administrative
Positions
Production
Positions
The HR budget process produces a staffing table, which contains 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 (Figure 5.22). This enables budgeting processes to
incorporate changes in compensation costs linked to the level of future human capital
demand.
Figure 5.22 Using a variety of indices, HR professionals can estimate the number and type
of human capital needed. [12]
5.4 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 reasonable to question the
assumptions of both methods to try to understand where differences in assumptions lead
to discrepancies in the forecasts.
HR Planning Notebook 5.4.1 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 of 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 5.4.1: Differences between Qualitative and Quantitative
Forecasting Data
Quantitative analysis and qualitative analysis can each provide information that
complements the other. 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 (refer to Table 5.6 and
Table 5.7). 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.
Table 5.6 Qualitative and Quantitative Forecasting Data Differences: Type of Data
Quantitative
Qualitative
Economic Outlook
Economic Outlook
Labour-force growth
Demographics
Labour-force projections
Political and regulatory environment
Industry projections
Technological change
Occupational projections
Societal change
Table 5.7 Qualitative and Quantitative Forecasting Data Differences: Type of Results
Quantitative
Qualitative
Detailed, numeric
estimates
More specific information that can easily be used to
produce HR system development plans
Source: Bartlett, Johnson, and Schneider (2016, 440–461).
5.4.1 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 incorporate
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 someone 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 nonlinear
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 technique, 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 provide insights for
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 simulation 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 influence
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 (Grossler and Zock 2010, 829–848). The advantage of simulation is in
providing knowledge around how demand estimates might react to changes in
environmental factors, in customer characteristics, in the training or skills requirements of
employees, or in any of the assumptions 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 customer needs and organizational resources can lead to
faster response times for organizations 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 5.4.1.
HR Planning Today 5.4.1: 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 unpredictable
and volatile demand. When the Quebec ice storm of 1998 downed over 1,000 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 services necessary to recover quickly. Planning must include scenarios
for these rare occurrences. At a smaller scale, service providers for those services we
consider to be necessary, 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 technicians 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. Modelling 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 variables such as the recruitment
rate (the number of technicians 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 conceptual basis of the model and the assumptions around the building of
the model require as much involvement from HR and the business line.
Source: Grossler and Zock (2010, 829–848).
Summary
L.O. 5.1 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
complexity) of quantitative demand models. There are various quantitative, qualitative, and
blended techniques that organizations use to forecast future requirements for HR
demand.
L.O. 5.2 Quantitative models are most useful when the past is expected to be a good
predictor of the future. Models can range from a simple trend analysis or regression
analysis to more complex machine learning methods that incorporate data about
customers, employees, and production. While some of these models can be complex, the
key to their success is understanding what the drivers of demand are and how HR practices
and employee attitudes and behaviours influence these processes.
L.O. 5.3 Qualitative methods range from a single manager’s estimate 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
(NGT). 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.
LO. 5.4 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.
Glossary
Correlation Describes the relationship between two variables.
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.
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.
Neural networks Made up of many nodes, where a node is a point at which information
arrives and is acted upon before being passed on as another piece of information for
another node.
Nominal group technique (NGT) A long-run forecasting technique utilizing expert
assessments.
Ratio analysis A quantitative method of projecting HR demand by analyzing the historical
relationship between an operational index and the number of employees required.
Regression analysis A forecasting method that predicts the value of a variable from what
is known historically about the relationship between that variable and one or more other
variables.
Over-trained Also called over-fitting, occurs when the model has been trained to almost
perfectly predict the training data but has trained itself so well for the nuances of those
particular data that the model does a poor job of predicting different data.
Scenario planning A method for imagining future possible organizational states and the
resulting capabilities, activities, or strategies that are necessary to be successful in those
future states.
Shared variance The correlation coefficient squared; allows us to understand how much
of one variable can be predicted by the other variable.
Simulation A blend of qualitative and quantitative modelling that incorporates a set of
assumptions about relationships among variables in a mathematical algorithm. Simulation
can simultaneously model demand and supply, and is very useful for testing the impact of
assumptions on the outcome of the model.
Staffing table Total HR demand requirement for operational or short-run time periods.
Structural equation modelling (SEM) A statistical technique that permits the testing of
multiple relationships simultaneously in a theoretically derived model.
Trend analysis A forecasting method that extrapolates from historical trends.
References
Akl, A.M., S. El Sawah, R. K.Chakrabortty, and H. H. Turan. 2022. "A Joint Optimization of
Strategic Workforce Planning and Preventive Maintenance Scheduling: A Simulation–
Optimization Approach." Reliability Engineering & System Safety 219: 108175.
https://doi.org/10.1016/j.ress.2021.108175.
Al-Subhi Al-Harbi, K. M. 2000. “Optimization of Staff Numbers in the Process Industries: An
Application of DEA.” International Journal of Manpower 21 (1): 47–55.
https://doi.org/10.1108/01437720010319453.
Andersen, B., and T. Fagerhaug. 2000. “The Nominal Group Technique.” Quality Progress 22
(2): 144–145.
Anonymous. 2005. “Tool Forecasts Labour Needs.” On-Site 49 (6): 10–11.
Bartlett, K. R., K. R. Johnson, and I. E. Schneider. 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.
https://doi.org/10.1080/15332845.2016.1148569.
Birdir, K., and T. Pearson. 2000. “Research Chefs’ Competencies: A Delphi
Approach.” International Journal of Contemporary Hospitality Management 12 (3): 205–
209. https://doi.org/10.1108/09596110010309989.
Boudreau, J. W. 2020. "Jobs Are Melting into Fluid Work." USC Center for Effective
Organizations. Center for Effective Organizations. Accessed August 19, 2022.
https://ceo.usc.edu/2020/09/29/jobs-are-melting-jobs-into-fluid-work/.
Bramwell, L., and E. Hykawy. 1999. “The Delphi Technique: A Possible Tool for Predicting
Future Events in Nursing Education.” Canadian Journal of Nursing Research 30 (4): 47–58.
Cascio, W.F. 1991. Applied Psychology in Personnel Management, 4th ed. Englewood
Cliffs, NJ: Prentice Hall.
Chan, C. et al. 2004. “Nursing Crisis: Retention Strategies for Hospital
Administrators.” Research and Practice in Human Resource Management 12 (2): 31–56.
Coffin, B. 2000. “Forecasting Terrorism Losses.” Risk Management 49 (11): 8–9.
Cooper, J., and S. Jackson. 2017. Workforce Planning Practices in Canada: Human
Resources Trends and Metrics, 4th ed. The Conference Board of Canada.
Delbecq, A.L., A. H. Van de Ven, and D. H. Gustafson. 1975. Group Techniques for Program
Planning. Glenview, IL: Scott Foresman.
Elbo, R. 2000. “In the Workplace: Competing with Poaching Employers.” Businessworld 1–
3.
Employment and Social Development Canada. 2020. 2016 Employment Equity Data
Report. www.canada.ca. Table 1: National labour market availability (percent). November
4, 2020. https://www.canada.ca/en/employment-social-
development/corporate/portfolio/labour/programs/employment-equity/reports/2016annual.html#es.
Fraser, C., and A. Fraser. 2000. “Measuring the Performance of Retail Managers in Australia
and Singapore.” International Journal of Retail & Distribution Management 28 (6): 228–243.
https://doi.org/10.1108/09590550010328409.
Fraser, C. 2000. “The Influence of Personal Characteristics on Effectiveness of
Construction Site Managers.” Construction Management & Economics 18 (1): 29–36.
https://doi.org/10.1080/014461900370924.
Gatewood, R. D., and E. J. Gatewood. 1983. “The Use of Expert Data in Human Resource
Planning: Guidelines from Strategic Forecasting.” Human Resource Planning 6 (2): 83–94.
Green, T. B. 1975. “An Empirical Analysis of Nominal and Interacting Groups.” Academy of
Management Journal 18 (1): 63–73. https://doi.org/10.2307/255625.
Grossler, A., and A. Zock. 2010. "Supporting Long-Term Workforce Planning with a Dynamic
Aging Chain Model: A Case Study from the Service Industry." Human Resource
Management 49 (5): 829–848. https://doi.org/10.1002/hrm.20382.
Guimaraes, T. A, J. E. Borges‐Andrade, M. dos Santos Machado, and M. Ramos Maia
Vargas. 2001. “Forecasting Core Competencies in an R&D Environment.” R&D
Management 31 (3): 249–255. https://doi.org/10.1111/1467-9310.00213.
Hampton, D.R., C. E. Summer, and R. A. Webber. 1987. Organizational Behavior and the
Practice of Management, 5th ed. Glenview, IL: Scott Foresman.
Heaven, P. 2022. "Canada Faces Record Wave of Retirements as It Grapples with Historic
Labour Shortage." Financial Post. Accessed August 19, 2022.
https://financialpost.com/news/economy/canada-faces-a-record-wave-of-retirements-asit-grapples-with-historic-labour-shortages.
Helmer, O., cited in Bramwell, L., and E. Hykawy. 1999. “The Delphi Technique: A Possible
Tool for Predicting Future Events in Nursing Education.” Canadian Journal of Nursing
Research 30 (4): 47–58.
Kang, I. G., B. Croft, and B. A. Bichelmeyer. 2020. "Predictors of Turnover Intention in U.S.
Federal Government Workforce: Machine Learning Evidence that Perceived
Comprehensive HR Practices Predict Turnover Intention." Public Personnel Management 50
(4): 538–558. https://doi.org/10.1177/0091026020977562.
Korte, R. F., and T. J. Chermack. 2006. “Changing Organizational Culture with Scenario
Planning.” Futures 39 (6) : 645–656. https://doi.org/10.1016/j.futures.2006.11.001.
Langford, B. E., G. Schoenfeld, and G. Izzo. 2002. “Nominal Grouping Sessions vs. Focus
Groups." Qualitative Market Research 5 (1): 58–70.
https://doi.org/10.1108/13522750210414517.
Loo, R., and K. Thorpe. 2003. “A Delphi Study Forecasting Management Training and
Development for First-Line Nurse Managers.” The Journal of Management Development 22
(9/10): 824–825. https://doi.org/10.1108/02621710310495801.
Loo, R., and K. Thorpe. 2004. “Making Female First-Line Nurse Managers More Effective: A
Delphi Study of Occupational Stress.” Women in Management Review 19 (2): 88–97.
https://doi.org/10.1108/09649420410525298.
Lundy, M. 2021. “The ‘Great Resignation’? It’s Not Happening in Canada.” Eastern
Workforce Innovation Board. Accessed August 19, 2022. https://www.workforcedev.ca/thegreat-resignation-its-not-happening-in-canada/.
Luthans, F. 1992. Organizational Behavior, 6th ed. New York, NY: McGraw-Hill.
Magnusson, K. 2022. “Interpreting Correlations: An interactive visualization”
Rpsychologist.com. June 9, 2020. Accessed September 1, 2022.
https://rpsychologist.com/correlation/.
Martel, L. 2019. “The Labour Force in Canada and Its Regions: Projections to 2036.”
Statistics Canada. Accessed August 19, 2022. https://www150.statcan.gc.ca/n1/pub/75006-x/2019001/article/00004-eng.htm.
McBeath, G. 1992. The Handbook of Human Resource Planning: Practical Manpower
Analysis Techniques for HR Professionals. Oxford: Blackwell.
Meehan, R., and B.S. Ahmed. 1990. “Forecasting Human Resources Requirements: A
Demand Model.” Human Resource Planning 13 (4): 297–307.
Milkovich, G. T, A. Annoni, and T. Mahoney. 1972. “The Use of Delphi Procedures in
Manpower Forecasting.” Management Science 19 (4): 381–388.
https://doi.org/10.1287/mnsc.19.4.381.
Milkovich, G.T., and T. A. Mahoney. 1978. “Human Resource Planning Models: A
Perspective.” Human Resource Planning 1 (1): 19–30.
Moore, T., and E. Bokelberg. 2019. "How IBM Incorporates Artificial Intelligence into
Strategic Workforce Planning." People & Strategy 42 (4), 52–55.
Navarro D. J., and D. R. Foxcroft. 2022. "Learning Statistics with Jamovi: A Tutorial for
Psychology Students and Other Beginners. (Version 0.75)." DOI: 10.24384/hgc3-7p15.
http://learnstatswithjamovi.com.
Oswald, F. L., T. S. Behrend, D. J. Putka, and E. Sinar. 2020. "Big Data in IndustrialOrganizational Psychology and Human Resource Management: Forward Progress for
Organizational Research and Practice." Annual Review of Organizational Psychology and
Organizational Behavior 7 (1): 505–533. https://doi.org/10.1146/annurev-orgpsych-032117104553.
Fusfeld, A. R., and R. N. Foster. 1971. “The Delphi Technique: Survey and
Comment.” Business Horizons 14 (3): 63–74. https://doi.org/10.1016/0007-6813(71)901200.
Passmore, D., E. Cebeci, and R. Baker. 2005. “Market-based Information for Decision
Support in Human Resource Development.” Human Resource Development Review 4 (1):
33–49. https://doi.org/10.1177/1534484304273843.
Roeden, J. M., M. A. Maaskant, and L.M. Curfs. 2012. “The Nominal Group Technique as an
Evaluation Tool for Solution-focused Coaching.” Journal of Applied Research in Intellectual
Disabilities 25 (6): 588–593. https://doi.org/10.1111/j.1468-3148.2012.00696.x.
Rohrbaugh, J. 1981. “Improving the Quality of Group Judgement: Social Judgement Analysis
and the Nominal Group Technique.” Organizational Behavior and Human Performance 28
(2): 272–288. https://doi.org/10.1016/0030-5073(81)90025-8.
Sobaih, A.E., C. Ritchie, and E. Jones. 2012. “Consulting the Oracle? Applications of
Modified Delphi Technique to Qualitative Research in the Hospitality
Industry.” International Journal of Contemporary Hospitality Management 24 (6): 886–906.
https://doi.org/10.1108/09596111211247227.
Statistics Canada. 2022. “The Daily — Labour Force Survey, December 2021.” Accessed
August 19, 2022. https://www150.statcan.gc.ca/n1/daily-quotidien/220107/dq220107aeng.htm.
Surowiecki, J. 2005. The Wisdom of Crowds. Toronto: Random House.
Tetlock, P. 2005. Expert Political Judgment: How Good Is It? How Can We Know? Princeton,
NJ: Princeton University Press.
Thomas, D. A., and R. J. Ely. 1996. "Making Differences Matter: A New Paradigm for
Managing Diversity." Harvard Business Review 74 (5): 79–90.
U.S. Bureau of Labor Statistics. 2022. “Number of Quits at All-Time High in November 2021:
The Economics Daily: U.S. Bureau of Labor Statistics.” Accessed August 19, 2022.
https://www.bls.gov/opub/ted/2022/number-of-quits-at-all-time-high-in-november2021.htm.
Van de Ven, A. H. 1974. Group Decision-making Effectiveness. Kent, OH: Kent State
University Center for Business and Economic Research Press.
Ward, D. 1996. “Workforce Demand Forecasting Techniques.” Human Resource Planning 19 (1): 54–55.
Credits
[1] Image by fizkes/Shutterstock.com
[2] Video courtesy of Global News/YouTube
[3] Image by haryanta.p/Shutterstock.com
[4] Image by Pink Candy/Shutterstock.com
[5] Magnusson, K. 2022. “Interpreting Correlations: An interactive visualization”
Rpsychologist.com. June 9, 2020. Accessed September 1, 2022.
https://rpsychologist.com/correlation/.
[6] Video courtesy of freeCodeCamp.org/YouTube
[7] Image by Scott Platt CC0
[8] Image by Pakpoom Makpan/Shutterstock.com
[9] Image by Possessed Photography on Unsplash
[10] Image by Cedric Fauntleroy CC0
[11] © iStock/Thinkstock.com
[12] Image by wutzkohphoto/Shutterstock.com
Case Study: Human Capital and Strategy at Loblaw
The grocery business has traditionally been very much a bricks-and-mortar retail
experience. Grocery stores pride themselves on product freshness, attractiveness of
displays, and marketing products through special store displays. Customers have the
chance to see and feel the produce before buying. These attributes are difficult to translate
to an online shopping experience; but the COVID-19 pandemic placed significant pressure
on the market to move to online shopping and home delivery.
The concept of remote buying of groceries and at-home delivery is not new. Grocery stores
have been taking telephone orders from customers and providing home delivery service for
years; however, the demand for such services has grown from being a rare service request
to a substantial portion of the business. Canadian shoppers are buying more and more
items online, and a survey from 2020 suggests that the pandemic led to a very large shift in
digital grocery sales, and that 30 percent of Canadians were now buying digitally
(grocerybusiness.ca. 2020).
Digital grocery sales require a different set of core organizational competencies and
activities than do bricks-and-mortar grocery sales. For example, inventory control for instore sales is almost instantaneous, as stock clerks will immediately recognize when
products are running low on the shelves (potentially even before a sale has been finalized);
website expertise is required to provide an interesting and simple shopping experience for
customers; and the products need to be converted from an order into groceries in grocery
bags, and the bags need to be delivered into the customer's hands. Methods for
accomplishing these objectives differ widely in the industry. Sobeys has invested heavily in
automating its warehouses to reduce the number of warehouse employees and to provide
a more seamless connection from customer product ordering to home delivery. With
Sobeys' intended model, no supermarket is required to fulfil a digital order and delivery.
Loblaw Companies Ltd. (Loblaw), on the other hand, is focusing on customer pick-up and
delivery from individual store locations. Given that Loblaw can claim to have a store within
10 kilometres of 90 percent of Canadians, this model makes use of its geographic
competitive advantage (Loblaw Companies Ltd. 2021). The Loblaw model further takes
advantage of the in-store investments the company has already made, so that customers
can benefit from the in-store offerings regardless of whether they shop in-store or digitally
and whether they have their order delivered to their door or pick their order up at the store.
The digital era has given grocery shoppers a variety of ways to get their food: customers
currently can choose to have groceries delivered to their doorstep from a warehouse, or
have a personal shopper select their groceries off a store shelf; customers can still go into
the store to choose their own groceries, or arrange a time to have their groceries ready for
them to pick up in the store parking lot, or have the groceries delivered to their door at a
pre-arranged time. The gig economy has given rise to businesses like Instacart that can find
you a shopper to go to the store at any time of day, do your shopping for you, and bring your
groceries to your home. With so many options available to the consumer, it can be very
challenging for supermarket chains to know where to invest money and human capital to
prepare for the future. Given the high costs of capital investments in automated
warehousing and inventory control versus the high costs of maintaining and staffing many
retail locations, the decision around which of these two general directions to follow can
have a large impact on the long term success of a supermarket chain. Should Loblaw
continue to invest in its integration of digital shopping and pick-up/delivery solutions with
bricks-and-mortar retail locations, or move to a more central, automated warehouse and
delivery solution?
Scenario Planning Exercise:
Form groups of about four people. In your group, knowing what you know from the previous
chapter case studies about Loblaw's strategy, sources of competitive advantage, and
environmental influences, perform the following steps to conduct a scenario planning
analysis about the most successful future state for Loblaw.
Case Study Question 5.1
1a. Using your PESTDL (political, economic, social, technological, legal) analysis from the
case study in Chapter 3 as a guide, spend some time brainstorming around the
environmental factors that could influence the supermarket business over the next five
years. Write each idea on a sticky note (you will see why in a few moments) and put it on
the table in front of you. Since this is a brainstorming exercise, do not spend time
questioning the reasonableness of each idea that is written on a sticky note; the purpose at
this point is to gather as many factors as possible.
1b. Once you have exhausted the group's ability to come up with new factors, consider all
the factors that you have written down. Organize the factors by their similarity to one
another. You will find that the factors form groups of topics. Organize the sticky notes into
these naturally occurring groups, and give each group a title that describes the overall
theme of the cluster of sticky notes.
1c. At this point, you should have a number of clusters (it could be as many as 6 to10
clusters) of sticky notes, and each cluster has its own descriptive title. These cluster titles
represent themes that have the potential to have a large impact on the supermarket
business over the next few years.
1d. Select the two clusters that you believe have the potential to have the greatest impact
on the supermarket business over the next five years. Now, place these clusters on a
Cartesian plane (refer to Figure 5.19, Scenario Planning) with one cluster title on the x-axis
and the other cluster title on the y-axis. Stretch each cluster out so that there are extremes
at each end of the cluster. For example, if a cluster title is "driving range between charges"
as in the electric vehicle example earlier in this chapter, one extreme of the range might be
"greater than 600 km between charges," while the opposite extreme might be "less than 100
km between charges." Perform this stretch for both cluster titles so that you have four
quadrants with clearly differentiated qualities (refer to Figure 5.19, Scenario Planning, for
an example).
1e. At this point, you have four quadrants, where each quadrant is defined by a set of
characteristics formed by the combination of cluster attributes in that quadrant. For
example, the top right quadrant represents the extreme high or positive aspects of clusters
1 and 2, whereas the bottom right quadrant will represent the combination of the extreme
high or positive of the cluster title positioned on the x-axis, and the extreme low or negative
of the cluster title on the y-axis. Discuss what the world would be like if these two
attributes happened together, and what it might do to the supermarket business. Give this
imaginary world a descriptive title. Now do this for each of the four worlds in your analysis.
1f. Now that you have a title for each of the four worlds formed by the combinations of the
extremes of the clusters, describe what kinds of organizational activities would be
important for success in each world. What knowledge, skills, abilities, and other
characteristics (KSAOs)/competencies would be important and valuable for carrying out
those organizational activities?
1g. Consider all four worlds and the descriptions of what is required for success in each of
those worlds. Are there any organizational activities, KSAOs, or competencies that overlap
all four of these worlds? If there are attributes that are common to all four worlds, chances
are that these attributes will be useful for success in most future states in the supermarket
business. These are the critical tasks, KSAOs, and competencies for success, and would
be valuable for the organization to work toward developing.
Case Study Question 5.2
Given the critical tasks, KSAOs, and/or competencies that you have identified as being the
most critical for future success in the supermarket industry, which general strategy do you
think aligns best with Loblaw's value proposition, values, and human capital resources: the
bricks-and-mortar solution that integrates digital sales, or the automated warehouse and
delivery solution?
References
Grocery Business. 2020. “57% Spike in Canadian Online Grocery Shoppers: Report.”
www.grocerybusiness.ca. April 22, 2020. Accessed August 8, 2022.
www.grocerybusiness.ca/news/57-spike-in-canadian-online-grocery-shoppers-report.
Loblaw Companies Ltd. 2021. “Check out Loblaw Financial Reports.” www.loblaw.ca.
2021. https://www.loblaw.ca/en/investors-reports. 2, 6.
Chapter 6: Ascertaining HR Supply
Figure 6.1 HR supply determines the sources of the organization's human capital
requirements. [1]
Learning Outcomes
L.O. 6.1 Understand the relationship between demand and supply forecasting techniques
in the HR planning process.
L.O. 6.2 Understand why human capital plays a critical role in implementing strategy and
describe how to manage the supply of that human capital.
L.O. 6.3 Discuss and evaluate the advantages and disadvantages of the following specific
methods of determining external and internal supply: skills and management inventories,
Markov models, linear programming and simulation, movement analysis,
and vacancy/renewal models.
L.O. 6.4 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.
Introduction
Indigenous Peoples: A Growing Labour Source
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 Indigenous population is the fastest growing
population in Canada, which means it is a potential source of labour now and in the
decades to come. However, in 2021, Indigenous peoples had an unemployment rate of
roughly 12.5 percent compared to about 7.5 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
Indigenous peoples is necessary to deal with labour shortages.
What can employers do to attract and retain this pool of labour? Organizations like Mikana,
centred in Montreal, have a mission to help organizations to decolonize social and
organizational culture (Mikana n.d.). This involves, but is not limited to giving attention to
Indigenous voices wherever possible, recognizing and de-centring the colonial roots of our
existing systems, and allowing a culture to form that is collaborative and based on the
experiences of all participants (Collège Ahuntsic 2021).
As shown in Video 6.1, Pimee Well Servicing, a 100 percent Indigenous-owned company
with a 98 percent Indigenous workforce, has been providing well servicing and general
maintenance services to the oilfield industry for many years.
Video 6.1 Indigenous Company and Workforce [2]
Sources: Statistics Canada (2022); Silliker (2012); Klie (2011)
In Chapter 5, Determining HR Demand, we examined a variety of methods used to forecast
HR demand. Many of these procedures (e.g., trend analysis, simulation, Delphi technique,
and nominal group technique) can also be used to determine the supply of human capital.
6.1 Importance of Job Analysis in Forecasting Labour Supply
6.1.1 Internal and External Human Capital
Human capital can be obtained from a source that is either internal to the organization
(current employees) or external (individuals currently not employed by the organization), or,
more commonly, from a combination of these sources. Many organizations give preference
to internal supply, because selecting these individuals for training and development, 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 human resource
management system skill inventories) of the employees’ performance and
knowledge, skills, abilities, and other attributes (KSAOs) 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.
When job analysis is done properly throughout the organization, it uncovers all the
KSAOs/competencies that are performed, and identifies in what jobs or other capacities
those KSAOs/competencies are performed. This inventory is instrumental in determining
training needs, and in performing a gap analysis between the strategic organizational
KSAOs/competencies required to implement the firm's value proposition and the
KSAOs/competencies that are currently present within the organization.
•
A strategic analysis can uncover the most important tasks or activities at the
organizational level that are required to implement the value proposition, and the
critical KSAOs or competencies necessary to perform those tasks or activities can
be inferred.
•
A gap analysis compares the KSAOs/competencies that are present within the
organization with those that are necessary to implement the value proposition, and
adjustments to the organization's stocks of human capital and HR practices may
then be made.
For example, if a retail bank performs a strategic analysis and determines that high levels of
teamwork and an understanding of all the retail branch jobs are important for ensuring that
customers' service needs are properly attended to, the HR function can examine the extent
to which teamwork is captured in its selection testing, and knowledge of branch jobs is
incorporated into its employee training, and adjust these practices as necessary. This type
of analysis can also help the firm to prioritize its human capital needs.
6.1.2 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 management 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.
Figure 6.2 Salespeople can be segmented based on their unique combinations of
preferences for a firm's employment contract. [3]
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 salespersons working on the floor
at one of the major clothing sales chains, such as the Gap, or J. Crew (Figure 6.2). 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 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 their 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 parttime or odd hours, as well as creating career development problems, as there is no way to
provide developmental opportunities and career progress for all the sales staff.
Researchers suggest 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 (Boudreau and Jesuthasan 2011). That way, firms can
influence and thus ensure a strong supply of human capital from each of these
segments. Boudreau and Jesuthasan (2011) propose three questions to understand and
influence supply:
1. What are the critical human capital segments? To answer this question, HR
practitioners must have a clear understanding of the organizational activities 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 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 benefits preferences, 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.
2. What response do we need from each of these segments? Let’s take as an
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 influence 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, 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?
3. What features of the employment deal create the best response at the lowest
cost? Looking at our example of influencing the supply of HR managers by
segmenting according to 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 demographics, the salesperson job at the
clothing store discussed earlier was segmented by features of the employment contract.
By segmenting according to preferences for organizational identification and commitment,
the clothing store can optimize its supply of full-time, part-time, and occasional workers to
balance scheduling needs. Segmenting workers along unique sets of attributes that make
the employment contract attractive allows forecasters to better understand and model
how to influence the supply of each of these employee groups. 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 to a skills gap, where
there is an insufficient number of workers who possess the skills necessary to perform the
job (refer to HR Planning Today 6.1.1). We now turn to an examination of some of the
mechanisms that influence the external supply of human capital.
HR Planning Today 6.1.1: 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 (CIRA) found that despite having competitive recruitment and
selection practices, almost 50 percent of the information technology (IT) companies
surveyed claimed they had had trouble filling IT positions in the previous 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 sufficient 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 organizations. 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 found in the recruitment and
hiring practices popular in firms today. Rather than selecting based on knowledge, skills,
abilities, and aptitudes derived from 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.
Source: Cappelli (2012); Canadian Internet Registration Authority (CIRA) (2016)
6.2 HR Supply Programs
6.2.1 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. Alternatively,
managers could train the types of workers they need. For example, the Work Based
Learning Consortium, a group of manufacturers, is hiring young unskilled people and
training them (with both classroom and on-the-job experiences) for jobs such as
machinists (Work Based Learning Consortium n.d.). However, Canadian organizations have
a relatively poor track record in training employees, compared to other countries. As
depicted in Figure 6.3, according to a survey of executives in 27 countries, only 38 percent
of businesses in Canada 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 Colombia 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 (Gault 2014).
Figure 6.3 Percentage of Businesses Offering Employee Training in Emerging Technologies
(Gault 2014)
6.2.2 Other Labour Pools
This chapter opened with examples of companies hiring Indigenous peoples in the
workforce. Organizations facing shortages could make targeted efforts to recruit from the
labour pools of the four designated groups, or from other stigmatized groups. 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 (Syracuse University 2011). Organizations such as the German software
company SAP have made commitments to increasing their hiring rate of neurodiverse
individuals to reflect the observed representation in the population, which is around 1
percent (McCullough 2017). In order to hire neurodiverse individuals or members of any of
Canada’s protected groups, organizations should use HR practices that incorporate job
analysis in order to understand all job-relevant attributes of the work, develop sciencebased selection practices that seek to reduce bias and control for other errors, and provide
realistic job previews so that working conditions are well understood beforehand. Job
analysis plays a critical role in removing bias in expectations around what is required to
perform a job, and in 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.
In Video 6.2, Dr. Nancy Doyle, an authority on neurodivergence and the workplace,
discusses the benefits of hiring, developing, and retaining neurodiverse employees
Video 6.2 Benefits of Neurodiverse Individuals in the Workplace [4]
HR Planning Today 6.2.1: Attracting Older Workers
By 2036, roughly 25 percent of Canadians will be 65 years old or older. A survey of 1,500
older workers (50 and over) revealed that older workers (Figure 6.4) desire many of the
same things that other workers rank as important:
Figure 6.4 Workers who have retired are a good source of labour, particularly if the
schedules are flexible. [5]
1. Learning and development opportunities
2. Job autonomy
3. Recognition and respect
4. Mentoring opportunities
5. Social support and a supportive organizational climate
6. Compensation
Sources: Chen and Gardiner (2019, 1318–1335); Armstrong-Stassen (2008, 38–44);
Employment and Social Development Canada (2016).
6.2.3 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 the number of students in the programs. 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
has been the case for auto workers in Ontario since the early 2000s. What is needed, they
argue, is a flexible, adaptable worker (Hirsch 2014; CBC News 2015).
However, there remains a shortage of Canadians who are available to work. For example,
Statistics Canada estimates that at the end of 2021, there were over 900,000 unfilled jobs,
mostly in health care; social assistance; retail trade; and professional, scientific, and
technical services (Statistics Canada 2022a).
6.2.4 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, highperforming 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 terms of 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 (McBey and Karakowsky
2000, 136–144). Attention should be paid to selection procedures to ensure that the
individual possesses the proper skills and competencies, as well as to orientation and
training and development to ensure that employees are provided with clear guidance with
regard to their employment and desired performance levels.
With continued labour shortages, retention programs are no longer an option for most
North American companies; they are fast turning into a key requirement for organizational
survival (Kohl 2000, 2). The costs of replacing current workers and acquiring new ones can
be staggering. Apart from “hard” costs (e.g., advertisements, headhunter and recruiting
fees, interview training and travel costs, administration expenses, cost of lost production,
bonuses or increased salaries acting as inducements to join, and so on), there are also the
“softer” elements (such as lost business and customer contacts, 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 (North et al. 2005, 49–62; Kohl 2).
Organizations that demonstrate flexibility and a genuine effort to assist their employees are
perceived to be more attractive places to work (refer to HR Planning Today 6.2.2 for an
example of how one company seeks to avoid layoffs). 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., flex time, 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
(Gram 2004; Joiner, Bartram, and Garreffa 2004, 164–171). Human capital is a potential
source of competitive advantage that can make the difference between organizational
success or failure (Lofgren, Nyce et al. 2002, 22–29), and retention programs can help to
reinforce this competitive advantage.
HR Planning Today 6.2.2: Retention of Highly Skilled Workers
Figure 6.5 Hitachi Construction Truck Manufacturing wants to implement a no-layoff policy
in order to keep skilled workers employed during slowdowns. [6]
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 experience
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 (Figure 6.5).
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, with plans to keep workers and assign them to training and
other activities during a 14-week layoff, at a cost of 50 million dollars. Recognizing the cost
of a no-layoff policy, Hitachi has asked for financial help from the government.
Sources: Doorey (2008); Keenan (2014); Lovell (2013).
Organizations are beginning to apply operations and marketing principles by segmenting
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 experience 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 also allowing employees the individual freedom to select how to receive these policies,
and even 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 (Cocolakis-Wormstall 2018). Refer
to HR Planning Notebook 6.2.1 for more recommendations for retaining employees.
HR Planning Notebook 6.2.1: 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 recommendations 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 attention to “toxic” bosses and coworkers, bad management practices, and a lack of autonomy and respect at work.
3. Implement flexible working arrangements to facilitate 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
benefits (time off, non-monetary rewards such as travel or goods, tuition assistance,
pension plans, life insurance, and so on).
5. Hold regular feedback and career development discussions 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, classifications, 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: Frank and Taylor (2004, 33–42); Greenwald (2004); HR Focus (2004); Helton and
Soubik (2004, 459–474); Trank, Rynes, and Bretz (2002, 331–345), Hay (2002, 52–56);
Langan (2000, 461–478)
6.3 Methods for Modelling the Supply of Human Capital
6.3.1 Skills and Management Inventories
The first step in supply analysis is an examination of the number and capabilities of current
employees. Skill inventories and management inventories contain information on the
capabilities of your employees (Buhler 2004, 20–23; Martin 1967, 28–30; Kaumeyer 1979).
A skills inventory is an individualized record held on each employee except those currently
in management or professional positions. Typically, a skills inventory contains information
for each individual on select areas, presented in Figure 6.6 below.
Figure 6.6 Skills Inventory (Schwarzkopf et al. 2004, 83–88; Martin 1967 28–30; Seamans
1978, 101–106)
This skills inventory record is entered into the organization’s human resource management
system (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; otherwise, an employee may not be considered for a job that they could
fill successfully.
Management inventories can be considered to be enhanced skills inventories, because
they contain all the above information as well as 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.
6.3.2 Markov Models
Markov models are the most popular technique used for contemporary supply-side HR
planning applications in medium-sized to large organizations (Bechet and Maki 1987, 209–
217; Konda and Stewman 1980, 276–301; Weigel and Wilcox 1993, 281–306).
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 can become highly unreliable in small firms. These models are widely
used in both educational and human capital planning processes (Bartholomew 1973; Law
1977, 269–275). 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 (Meehan and Ahmed 1990, 297–307), 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 (Heneman and
Sandver 1977, 535–542; Vassiliou 1976, 57–70). 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, it provides 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.
According to researchers (Gans and Zhou 2002, 991–1007; Bechet and Maki 1987, 209–
217), 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)
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 (Blakely 1970, 39–46). 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
dramatically, 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 (Stone and Fiorito 1986, 635–642). Refer to Table 6.1 for an example of a
Markov Model.
There are three main steps to using a Markov model for HR planning purposes:
1. Collect historical data on mobility rates between jobs in the organization (many
organizations collect data on turnover rate, promotion rate, and rates of lateral
transfers and demotions).
2. Based on these data, develop matrices to forecast future movement between jobs.
3. Use the forecasts of the model to analyze HR policies and programs, and instigate
the necessary adaptive measures (Zeffane and Mayo 1995, 6–17.).
Video 6.3 provides an overview on the use of Markov analysis in HR planning.
Video 6.3 Markov Analysis [7]
Now that we understand the purpose of Markov analyses, let’s try an example of Markov
analysis using the data in Table 6.1. 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.
Table 6.1 Markov Model (Note: The probabilities (percentages) of various movement
options are expressed horizontally and sum to 1 (100 percent).) (For accessible table
please refer to Content for Accessibility folder.)
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 below the percentage listings show
the expected numbers of employees who will transition 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 will come 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, suggesting 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.
The sequences of movements between various job states are referred to as Markov
chains (Gans and Zhou 2002, 133–143). Markov chains are derived from the Markov 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 (White 1970a).
The length of an average chain is approximately three (Stone and Fiorito 1986, 635–642).
Apart from its obvious appeal for the career planning of individuals who have upward
aspirations in the organization (Gridley 1986, 50–58), HR planners can use the derived
information to plan when training and development courses, job rotations, and so on
should be conducted 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 (Sandefur 1981, 67–82; Bartholomew 1996). 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)
(Tuma 1976, 338–360)
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 period (Rowland and
Sovereign 1969, 88–99; Glen 1977, 975–982)
To summarize, for 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;
and
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 (refer to HR Planning Today 6.3.1) (Lagarde and Cairns
2012, 270–282). 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.
HR Planning Today 6.3.1: 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; however, 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 areas in South Africa and to retain these nurses longer.
The Markov model was developed using roughly the same method outlined in this chapter.
The planners developed a set of assumptions that incorporate the various states nurses
could occupy during their career. These states included (1) working in the rural sector, (2)
working in the urban sector, (3) working in the private sector, (4) working overseas, (5) doing
a one-year specialty training course, and (6) leaving 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 examined a typical career of 40 years, from age 25 to age 65.
The difficult part of this model is determining the transitional probabilities of moving from
one state to another. This involved making many assumptions about the workforce and
combining those assumptions with observations of past movements. The information
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 assumptions and modelling policy
interventions, such as how movements would change if nurses working in rural conditions
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 simple
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 movements 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
instituted, HR professionals can track employee movements to observe the extent to which
their assumptions were correct, and make further corrections if necessary.
Source: Lagarde and Cairns (2012, 270–282)
6.3.3 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 (Al Subhi AlHarbi 2000, 47–55; Gans and Zhou 2002, 991–1007; Weigel and Wilcox 1993, 281–306).
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 model
provides the optimum or best supply-mix solution, and the best conditions obviously vary
across organizations (Patz 1970, 131–138). 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, Indigenous
peoples, and people with disabilities) in all job levels throughout the organization (Gans
and Zhou 2002, 991–1007; Walker 1980). 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
both internal and external supply.
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 elements. 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 dependency on the
assumptions around the algorithms used to calculate the forecasts. Refer to Video 6.4
below to learn more about linear programming.
Video 6.4 Linear Programming [8]
The province of British Columbia used linear programming to determine the total number
of students to admit to health care 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 (Lavieri and Puterman 2009, 119-128). 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 whatif 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,
Information Technology, for HR Planning the complexity of these models can make them
difficult to understand and troubleshoot, even for the designers of the models.
6.3.4 Movement Analysis
Movement analysis is a technique used to analyze the chain or ripple effect that
promotions or job losses have on the movements of other employees in an organization
(Bartholomew 1982; Bartholomew 1996; Burack and Mathys 1996; White 1970a; White
1970b, 97–105). 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
organization, 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, as shown in Figure
6.7, or to termination) will result in a chain of subordinates sequentially moving to fill the
gaps (refer to HR Planning Notebook 6.3.1 for recommendations around how to manage
internal labour markets) (Geerlings and Van Veen 2001, 287–310; White 1970a; White
1970b, 97–105). 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.
Figure 6.7 Most large organizations have a policy of promoting from within. [9]
HR Planning Notebook 6.3.1: 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 an organization’s staffing
requirements, based on their study of a large manufacturing firm:
1. Managers should recognize that there are often multiple 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 multiple
criteria are typically invoked in matching individuals and jobs.
Source: Pinfield and Bushe (1992)
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 (Monks 1996, 721–735). 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
forecasted at the start of the period, we now turn to calculating the 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 6.3.2 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.
HR Planning Notebook 6.3.2: Using Data to Decide Whether to Develop Internally or
Hire Externally
The decision to make or buy the inputs necessary to produce a product or service are
based on factors such as the strategic importance of the input, and the strength the
supplier of the product has in capturing value. For example, television manufacturers tend
to differentiate 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 its current
source, or if its source becomes so expensive that it no longer derives a competitive
advantage from selling televisions, it could (1) move out of the television sales industry, (2)
design and manufacture its own LCD panels, or (3) buy its 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 its 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 6.4.1, it is possible to assess the cost of too much supply
versus not enough. The Government 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. The relevant forecasts
produced by the federal government include the following:
•
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
experiencing or are expected to experience a shortage or surplus of available labour.
•
Job openings by skill level. The Canadian Occupational Projection System (COPS)
produces forecasts of job openings attributable to economic 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 forecast 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 (2019); Employment and Social Development Canada (2021)
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 5; by the end of
the period, this increases 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 notice 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.
Table 6.2 Number of Positions to be Filled (Burack and Mathys (1996); Bartholomew
(1982); Burack and Walker (1972); Grinold and Marshall (1977); Niehaus (1988, 95–
107); Walker (1980); White (1970a))
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
Table 6.3 Employee Movement (Burack and Mathys (1996); Bartholomew (1982); Burack
and Walker (1972); Grinold and Marshall (1977); Niehaus (1988, 95–107); Walker (1980);
White (1970a)) (For accessible table please refer to Content for Accessibility folder.)
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.
6.3.5 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
(Geerlings and Van Veen 2001, 287–310; White 1970a; White 1970b, 97–105; Bartholomew
1982; Bartholomew 1996). Vacancy models have been found to have more predictive
capacity than Markov models over short- and long-term periods (of three, five, and ten
years) (Konda and Stewman 1980, 276–301), although the common 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).
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 forecasting 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 1 and 2 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.
Table 6.4 Output of a Vacancy Model Exercise
Number of
Level 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
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.
6.4 Substitution and Other Gap Strategies
After forecasting the demand for and 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 voluntary terminations,
increasing training and development efforts to further develop the internal labour pool, and
substituting human efforts with automation (refer to Figure 6.8 and HR Planning Notebook
6.4.1 for ideas on enhancing retention policies). The introduction to Chapter 5 discusses
the uncertainty that automation will bring to employment over the next 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 (Knoess, Harbour, and Scemama 2016, 2–5). 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.
Figure 6.8 Automation is expected to become a popular substitution strategy over the next
decade, particularly for low-skilled or repetitive jobs. [10]
HR Planning Notebook 6.4.1: Developing Effective Employee Retention Policies
Although most organizations tend to devote considerable time and resources to the
process of attracting new workers, a great many fall short of putting enough emphasis
on retaining the high-quality workers they currently 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 performance evaluation should incorporate
specific measurable 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 the following:
1. Forming a “retention task force” that includes HR professionals, line unit managers,
and senior executives.
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.
5. Reviewing and addressing compensation and working condition issues before they
become issues of dissatisfaction that prompt employees to leave the organization.
Sources: Young (2000, 117–120); Abrams (2002, 15–18)
6.4.1 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. Video 6.5 describes the
bullwhip effect.
Video 6.5 Bullwhip Effect [11]
For example, if the manager at a clothing retailer is uncertain as to the exact supply of parttime salespeople in the store, they 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 salespeople, planners will reduce risk by estimating
demand a little on the high side, to make sure there is not a shortage of part-time
salespeople. Now this error has been compounded, so when a gap analysis is examined
between the estimated demand for and supply of part-time salespeople, 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 salespeople.
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
salespeople. The bullwhip effect can be present in any kind of supply chain, and in the
context of human capital management it can waste recruitment resources, employee time,
and the firm’s money. HR Planning Today 6.4.1 provides recommendations around
understanding and reducing the negative consequences of forecasting errors.
HR Planning Today 6.4.1: 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 overestimating supply. For a high-tech company
that estimates that it should hire 10 new engineers, will business suffer more from hiring 10
when it only needed 6, or from hiring 10 when it 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 tend to
be compounded by subsequent estimates. In order to measure how much error has crept
into their estimates, planners can compare past forecasts with actual requirements. 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 direction (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 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 hires,
etc.)? Planners must also consider what will happen if estimates are too high; can the
surplus employees be used in some other way that is useful to both the employee and 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: Cappelli (2009, 8–15)
Summary
L.O. 6.1 Job analysis is an important tool for uncovering the important and job relevant
KSAOs/competencies for a job. This information is necessary to demonstrate where critical
KSAOs are present in the organization, as well as where critical KSAOs may be absent.
Training and development plans can be put into place to fill any gaps. Employee
segmentation is an emerging method to increase the firm's ability to ensure that critical
KSAOs are available.
L.O. 6.2 Organizations cannot rely solely on government programs and market forces to
ensure an adequate supply of human capital. Firms can train employees, target specific
labour markets, and expand the candidate pool through inclusion and diversity efforts. In
addition to increasing the number of people with the necessary human capital,
organizations can focus on retaining existing employees using targeted retention practices
and by customizing the HR experience at the individual employee level.
L.O. 6.3 Skills and management inventories contain information that allows a detailed
analysis of the current workforce to determine whether an organization 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 positions throughout the organization and can track career progression and the time
required for individuals to reach specified target jobs. Linear programming and simulation
use mathematical 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, compensation level, and the
organization as a whole.
L.O. 6.4 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.
Glossary
Bullwhip effect When errors in estimating the supply of human capital are amplified along
the supply chain, resulting in large overestimates of hiring needs.
Employee segmentation The grouping of employees based on characteristics that are
relevant to the employee experience, such as career preferences, demographics, work–life
preferences, or benefits.
External supply Members of the workforce not currently employed by the firm, who are
currently undergoing training, working for competitors, members of unions or professional
associations, in a transitional stage, between jobs, or unemployed.
Internal supply Existing employees who can be retrained, promoted, transferred, or
otherwise redeployed to fill anticipated future HR requirements.
Linear programming A complex mathematical procedure commonly used for project
analysis in engineering and business applications; it can determine an optimum or bestsupply mix solution to minimize costs or other constraints.
Management inventory An individualized personnel record for managerial, professional,
or technical personnel that includes all elements in the skills inventory with the addition of
information on specialized duties, responsibilities, and accountabilities.
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.
Mass customization of HR The ability to customize HR practices at the employee level
efficiently and at low cost.
Movement analysis A technique used to analyze the chain or ripple effect that promotions
or job losses have on the movements of employees.
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.
Skills inventory An individualized personnel record held on each employee except those
currently in management or professional positions.
Transitional probability Calculated as 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 transitional probability of termination for a job that
has 10 employees and historically has seen two leave every year is 2/10, or 20 percent.
Vacancy, renewal, or sequencing model Analyzes flows of employees throughout the
organization by examining inputs and outputs at each hierarchical or compensation level.
References
Abrams, M. 2002. “Employee Retention and Turnover: Holding Managers
Accountable.” Trustee 55 (3): 15–18.
https://eurekamag.com/research/045/345/045345753.php.
Al Subhi Al-Harbi, K. M. 2000. “Optimization of Staff Numbers in the Process Industries: An
Application of DEA.” International Journal of Manpower 21 (1): 47–55.
https://doi.org/10.1108/01437720010319453.
Armstrong-Stassen, M. 2008. “Encouraging Retirees to Return to the Workforce.” Human
Resource Planning 29 (4): 38–44.
Bartholomew, D. J. 1973. Stochastic Models for the Social Sciences. London: Wiley.
Bartholomew, D. J. 1982. Stochastic Models for the Social Sciences, 3rd ed. London: Wiley.
Bartholomew, D. 1996. Mobility Measurement Revisited in the Statistical Approach to
Social Measurement. San Diego, CA: Academic Press.
Bechet, T. P., and W. R. Maki. 1987. “Modeling and Forecasting: Focusing on People as a
Strategic Resource.” Human Resource Planning 10 (4): 209–217.
Ben-Hur, S. 2012. “Viewpoint.” Training Journal. 8–9.
https://www.trainingjournal.com/article/opinion/viewpoint-shlomo-ben-hur-nov-12.
Blakely, R. 1970. “Markov Models and Manpower Planning.” Industrial Management
Review (December): 39–46.
Boudreau, J., and R. Jesuthasan. 2011. “Chapter 2: Where Are Your Pivotal Talent
Segments?” Transformative HR: How Great Companies Use Evidence-based Change for
Sustainable Advantage. Jossey-Bass.
Buhler, P. 2004. “Managing in the New Millennium.” Super Vision 65 (2): 20–23.
Burack, E. H., and N. J. Mathys. 1996. Human Resource Planning: A Pragmatic Approach to
Manpower Staffing and Development, 3rd ed. Northbrook, IL: Brace Park.
Burack, E.H., and J. Walker. 1972. Manpower Planning and Programming. Boston, MA: Allyn
& Bacon.
Canadian Internet Registration Authority (CIRA). 2016. Canadian Internet Forum 2016
Report. Accessed August 19, 2022. https://www.cira.ca/resources/stateinternet/report/canadian-internet-forum-2016-report.
CBC News. 2015. “Auto Industry Decline Hits Young Families Hardest, Study Finds.” CBC,
27. Accessed August 23, 2022. www.cbc.ca/news/canada/windsor/auto-industry-declinehits-young-families-hardest-study-finds-1.2932795.
Cappelli, P. 2012. Why Good People Can’t Get Jobs: The Skills Gap and What Companies
Can Do About It. Philadelphia, PA: Wharton Digital Press.
https://doi.org/10.2307/j.ctv2hdrfbw.
Cappelli, P. 2009. "A Supply Chain Approach to Workforce Planning." Organizational
Dynamics 38: 8–15. https://doi.org/10.1016/j.orgdyn.2008.10.004.
Chen, M. K. L., and E. Gardiner. 2019. “Supporting Older Workers to Work: A Systematic
Review.” Personnel Review 48 (5): 1318–1335. https://doi.org/10.1108/PR-11-2018-0455.
Cocolakis-Wormstall, M. 2018. “Labour Shortage: Here to Stay Worker Scarcity in Canada
and What Businesses Can Do to Respond.” BDC.
https://www.bdc.ca/en/documents/analysis_research/labour-shortage.pdf.
Collège Ahuntsic. 2021. “A Space for the Co-Construction and Sharing of Indigenization
Methods.” Accessed September 4, 2022.
https://www.collegeahuntsic.qc.ca/documents/60fbd478-cbae-4e76-b274fdc843476553.pdf.
Doorey, D. 2008. "Toyota's No Layoff Policy." The Law of Work. Accessed June 22, 2022.
http://lawofwork.ca/?p=149
Employment and Social Development Canada. 2021. “Canadian Occupational Projection
System.” occupations.esdc.gc.ca. Accessed August 23, 2022.
https://occupations.esdc.gc.ca/sppc-cops/l.3bd.2t.1ils@-eng.jsp.
Employment and Social Development Canada. 2016. “Age-Friendly Workplaces: Promoting
Older Worker Participation - Canada.ca.” Canada.ca. Accessed August 14, 2022.
www.canada.ca/en/employment-social-development/corporate/seniors/forum/olderworker-participation.html.
Frank, F., and C. Taylor. 2004. “Talent Management: Trends That Will Shape the
Future.” Human Resource Planning 27 (1): 33–42.
Gans, N., and Y. Zhou. 2002. “Managing Learning and Turnover in Employee
Staffing.” Operations Research 50 (6): 991–1007.
https://doi.org/10.1287/opre.50.6.991.343.
Gault, C. 2014. "Canada’s Private Sector Will Have Nobody to Blame for the ‘Talent Crisis’
But Themselves." Financial Post. Accessed June 23, 2022.
https://financialpost.com/executive/c-suite/canadas-private-sector-has-nobody-toblame-for-the-talent-crisis-but-themselves.
Geerlings, W., and K. Van Veen. 2001. “Simulating Patterns of Organizational
Careers.” Computational and Mathematical Organization Theory 7 (4): 287–310.
https://doi.org/10.1023/A:1013402216453.
Glen, J. J. 1977. “Length of Service Distributions in Markov Manpower Models.” Operational
Research Quarterly 28 (4): 975–982. https://doi.org/10.1057/jors.1977.195.
Gram, J. 2004. “New Approaches to Human Resource Forecasting in the Public
Sector.” Public Manager 32 (4).
Greenwald, J. 2004. "Benefits Programs Aim to Keep More Moms in the (Work)
Family.” Business Insurance. February 1, 2004.
https://www.businessinsurance.com/article/20040201/ISSUE01/100014066/benefitsprograms-aim-to-keep-more-moms-in-the-work-family.
Gridley, J. 1986. “Who Will Be Where When? Forecast the Easy Way.” Personnel Journal 65
(5): 50–58.
Hay, M. 2002. “Strategies for Survival in the War of Talent.” Career Development
International 7 (1): 52–56. https://doi.org/10.1108/13620430210414883.
Helton, K., and J. Soubik. 2004.“Case Study: Pennsylvania’s Changing Workforce: Planning
Today with Tomorrow’s Vision.” Public Personnel Management 33 (4): 459–474.
Heneman, H. G., and M. G. Sandver. 1977. “Markov Analysis in Human Resource
Administration: Applications and Limitations.” Academy of Management Review 2 (4): 535–
542. https://doi.org/10.5465/amr.1977.4406722.
Hirsch, T. 2014. “Skilled Workers Are Good, but Adaptable Workers Are Better.” The Globe
and Mail. Accessed August 19, 2022. www.theglobeandmail.com/report-on-business/robcommentary/executive-insight/skilled-workers-are-good-but-adaptable-workers-arebetter/article18565676/.
Joiner, T., T. Bartram, and T. Garreffa. 2004. “The Effects of Mentoring on Perceived Career
Success, Commitment and Turnover Intentions.” Journal of American Academy of
Business 5 (1/2): 164–171.
Kaumeyer, R. H. 1979. Planning and Using Skills Inventory Systems. New York, NY: Van
Nostrand Reinhold.
Keenan, G. 2014. “For Hitachi, Keeping Skilled Workers Is Key,” The Globe and
Mail (November): B7.
Klie, S. 2011. “Aboriginals a Strategic Imperative.” Canadian HR Reporter 24, no. 8 (April): 1,
8.
Knoess, C., R. Harbour, and S. Scemama. 2016. “Prepare Your Workforce for the
Automation Age.” Harvard Business Review Digital Articles (November): 2–5.
Kohl, N. 2000. “HR Managers Losing the Retention Game.” Pro2Net (November): 2.
Konda, S., and S. Stewman. 1980. “An Opportunity Labor Demand Model and Markovian
Labor Supply Models: Comparative Tests in an Organization.” American Sociological
Review 45 (2): 276–301. https://doi.org/10.2307/2095126.
Langan, S. 2000. “Finding the Needle in the Haystack: The Challenge of Recruiting and
Retaining Sharp Employees.” Public Personnel Management 49 (4): 461–478.
https://doi.org/10.1177/009102600002900404.
Lagarde, M., and Cairns, J. (2012), “Modelling Human Resources Policies with Markov
Models: An Illustration with the South African Nursing Labour Market.” Health Care
Management Science 15 (3): 270–282. https://doi.org/10.1007/s10729-011-9184-5.
Lavieri, M.S., and Puterman, M.L. 2009. “Optimizing Nursing Human Resource Planning in
British Columbia.” Health Care Management 12 (2): 119–128.
https://doi.org/10.1007/s10729-008-9097-0.
Law, H. 1977. “A Projection Model and a Rational Policy for the Supply and Demand of
Human Resources from an Educational Institution.” Applied Mathematical Modeling 1 (5):
269–275. https://doi.org/10.1016/0307-904X(77)90020-8.
Lofgren, E., S. Nyce, et al. 2002. “Will You Be Stranded by a Worker Shortage?” Electric
Perspectives 27 (3): 22–29.
Lovell, J. 2013. "Hitachi Big on Future in Guelph." Guelph Tribune. Accessed August 23,
2022. https://www.guelphmercury.com/news-story/5866135-hitachi-big-on-future-inguelph/.
Martin, R. 1967. “Skills Inventories.” Personnel Journal 46 (1): 28–30.
McBey, K., and L. Karakowsky. 2000. “Examining Sources of Influence on Employee
Turnover in the Part-Time Work Context.” Leadership and Organization Development
Journal 21 (3): 136–144.
McCullough, M. 2017. “Autistic Employees Make Inroads as Companies Embrace
‘Neurodiversity.’” Canadian Business. Accessed August 23, 2022.
http://www.canadianbusiness.com/innovation/autism-neurodiversity-hiring/.
Mikana. n.d. “About Us.” Mikana. Accessed August 30, 2022.
https://www.mikana.ca/en/about-us/.
Meehan, R., and B. S. Ahmed. 1990. “Forecasting Human Resources Requirements: A
Demand Model.” Human Resource Planning 13 (4): 297–307.
Monks, K. 1996. “Global or Local? HRM in the Multinational Company: The Irish
Experience.” International Journal of Human Resource Management 7 (3): 721–735.
https://doi.org/10.1080/09585199600000152.
Niehaus, R. J. 1998. “Models for Human Resource Decisions,” Human Resources
Planning 11 (2): 95–107.
Nielsen, G.L., and A.R. Young. 1973. “Manpower Planning: A Markov Chain
Application.” Public Personnel Management 2 (2): 133–143.
https://doi.org/10.1177/009102607300200212.
North, N., Rasmussen, E., Hughes, F., and Finlayson, M. 2005. "Turnover amongst Nurses
in New Zealand's District Health Boards: A National Survey of Nursing Turnover and
Turnover Costs." New Zealand Journal of Employment Relations 30 (1): 49–62.
Patz, A. L. 1970. “Linear Programming Applied to Manpower Management.” Industrial
Management Review 11 (2): 131–138.
Pinfield, L., and V. Bushe. 1992. “Managing the Firm’s Internal Labour Market: Lessons from
the Field.” Burnaby, BC: Faculty of Business Administration, Simon Fraser University.
Rowland, K., and M. Sovereign. 1969. “Markov Chain Analysis of Internal Manpower
Supply.” Industrial Relations 9 (1): 88–99. https://doi.org/10.1111/j.1468232X.1969.tb00495.x.
Sandefur, G. 1981. “Organizational Boundaries and Upward Job Shifts.” Social Science
Research 10 (1): 67–82. https://doi.org/10.1016/0049-089X(81)90006-5.
Schwarzkopf, A. B., R. J. Mejias, J. Jasperson, C. S. Saunders, and H. Gruenwald. 2004.
"Effective Practices for IT Skills Staffing." Communications of the ACM 47 (1): 83–88.
https://doi.org/10.1145/962081.962084.
Seamans, L. 1978. “What’s Lacking in Most Skills Inventories.” Personnel Journal (March):
101–106.
Silliker, A. 2012. “Aboriginals Key to Tackling Labour Shortage” Canadian HR Reporter 25
(19): 11. https://www.proquest.com/trade-journals/aboriginals-key-tackling-labourshortage/docview/1174043921/se-2.
Stone, T., and J. Fiorito. 1986. “A Perceived Uncertainty Model of Human Resource
Forecasting Technique Use.” Academy of Management Review 11 (3): 635–642.
https://doi.org/10.2307/258315.
Statistics Canada. 2022. “Labour Force Characteristics by Region and Detailed Indigenous
Group.” Accessed August 1, 2022.
www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1410036501.
Statistics Canada, 2022a. “The Daily — Job Vacancies, Fourth Quarter 2021.” Accessed
March 22, 2022. https://www150.statcan.gc.ca/n1/daily-quotidien/220322/dq220322aeng.htm.
Statistics Canada. 2019. “Job Vacancy Statistics.” Accessed August 23, 2022.
http://www23.statcan.gc.ca/imdb/p2SV.pl?Function=getSurvey&SDDS=5202.
Syracuse University. 2011. "What Is Neurodiversity?” National Symposium on
Neurodiversity at Syracuse University. Accessed August 23, 2022.
https://neurodiversitysymposium.wordpress.com/what-is-neurodiversity/.
Trank, C., S. Rynes, and R. Bretz. 2002. “Attracting Applicants in the War for Talent:
Differences in Work Preferences Among High Achievers.” Journal of Business and
Psychology 16 (3): 331–345. https://doi.org/10.1023/A:1012887605708.
Tuma, N. 1976. “Rewards, Resources, and the Rate of Mobility: A Nonstationary
Multivariate Stochastic Model.” American Sociological Review 41 (2): 338–360.
https://doi.org/10.2307/2094478.
Vassiliou, P.C. 1976. “A Markov Chain Model for Wastage in Manpower
Systems.” Operational Research Quarterly 27 (1): 57–70.
https://doi.org/10.1057/jors.1976.6.
Walker, J. W. 1980. Human Resource Planning. New York, NY: McGraw-Hill.
Weigel, H., and S. Wilcox. 1993. “The Army’s Personnel Decision Support
System.” Decision Support Systems 9 (3): 281–306. https://doi.org/10.1016/01679236(93)90059-C.
White, H. 1970a. Chains of Opportunity: System Models of Mobility in Organizations.
Cambridge, MA: Harvard University Press.
https://doi.org/10.4159/harvard.9780674437203.
White, H. 1970b. “Matching Vacancies and Mobility.” Journal of Political Economy 78 (1):
97–105. https://doi.org/10.1086/259604.
Work Based Learning Consortium. n.d. “Work Based Learning Consortium | Skill Based
Programs to Get Jobs in Manufacturing.” Accessed August 26, 2022.
https://www.workbasedlearning.ca.
Young, M. 2000.“The Case of the Missing CEO.” Canadian HR Reporter (February): 117–120.
Zeffane, R., and G. Mayo. 1995. “Human Resource Planning for Rightsizing: A Suggested
Operational Model.” American Business Review 13 (2): 6–17.
Credits
[1] Image by tomertu/Shutterstock.com
[2] Video courtesy of ImperialOil/YouTube
[3] Image by lentamart/Shutterstock.com
[4] Video courtesy of myHRfuture/YouTube
[5] Image by goodluz/Shutterstock.com
[6] Image by azrin_aziri/Shutterstock.com
[7] Video courtesy of Nancy Bereman/YouTube
[8] Video courtesy of Visually Explained/YouTube
[9] Image by fizkes/Shutterstock.com
[10] Image by Ned Snowman/Shutterstock.com
[11] Video courtesy of Eye on Tech/YouTube
Case Study: HR Planning at M&K
1. The workforce complement at M&K as of the end of this year is as follows:
Table 6.1
Position
Job Level Staffing Level
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
1,200
2. The staffing levels for CEO and Executive Vice-Presidents are to remain unchanged next
year. The number of Senior Vice-Presidents and Vice-Presidents required are dependent on
annual revenues. Staffing levels for Senior Vice-Presidents and Vice-Presidents are
considered to be optimal in this year. Revenue generated for the year 2022 was 2 billion
dollars with 10 Senior Vice-Presidents and 20 Vice-Presidents. The revenue level for next
year is expected to reach 3 billion dollars.
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 to the payroll
administration company DES next year. The company is getting rid of its doughnut business
because of the shift in consumer tastes to healthier foods. Currently, 15 directors, 20
senior managers, 30 managers, 50 associates, and 150 assistants are involved in these
activities.
5. The introduction of a new computer system will increase the productivity of the
assistants by 50 percent but will require hiring a team of technical staff, which will include
5 senior managers, 10 managers, and 50 associates.
6. Forecasted losses for next year are as follows:
Table 6.2
Quits (percent) Dismissals (percent) Retirements (percent)
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
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 shown in Table 6.3
Table 6.3
Inside (percent) Outside (percent)
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 human resource information
system (HRIS), annual employee movements between levels 5 and 9 in the last year are as
follows:
Table 6.4 (For accessible table please refer to Content for Accessibility folder.)
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 enterprise resource planning (ERP):
Table 6.5
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
Case Study Question 6.1
Estimate the total HR demand for M&K for next year, by job level.
Case Study Question 6.2
Estimate changes in HR supply for M&K for next year, by job level.
Case Study Question 6.3
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 7.b.
As HR director, what do you consider as some of the talent strategies and plans that have
to be in place to facilitate each of the above options?
Case Study Question 6.4
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?
Case Study Question 6.5
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 dollars
b. Increase to 3.5 billion dollars
How many managers would M&K have to let go if revenues drop to 1.5 billion dollars?
Chapter 7: Succession Management
Figure 7.1 The identification and development of future leaders is critical to the success of
organizations. [1]
Learning Outcomes
L.O. 7.1 Understand why succession management is important.
L.O. 7.2 Trace the evolution of succession management from its origins in replacement
planning, comparing the two models in terms of focus, time, and talent pools.
L.O. 7.3 Explain the succession management process, starting with the crucial first step of
connecting business plans and strategies.
L.O. 7.4 Compare and contrast the job-based and competency-based approaches to
aligning future needs with strategic objectives.
L.O. 7.5 Discuss the four methods for identifying managerial talent as well as how to
assess employees to identify high-potential candidates.
L.O. 7.6 Evaluate the advantages and disadvantages of the five management development
methods: promotions, job rotations, special assignments, formal training, and mentoring
and coaching.
L.O. 7.7 Recognize the difficulties in measuring the success of a management succession
plan.
L.O. 7.8 Describe the employee's and HR's role in succession management.
Introduction
Succession Management at Nestlé
Figure 7.2 The succession plan of Nestlé, the largest food company in the world, includes
special developmental plans for high-potential employees. [2]
Nestlé, the largest food company in the world, sells almost every type of food and
beverage, including chocolate bars, such as KitKat, and coffee products, such as
Nespresso; employs 276,000 people; and sells its products in 186 countries (Figure 7.2). It
uses several approaches to ensure that there are "ready now" employees for vacancies.
The core capability pool consists of those employees with the technical skills needed to
manufacture and sell the products. This group receives 16 hours of technical training per
year and makes up the majority of the workforce. The company also uses talent "puddles"
for jobs where there is a shortage of qualified candidates.
Nestlé's succession management process is designed to be used for employees with
records of superior performance who will assume leadership roles. These people are in the
high-potential pool, and will be given special development programs and experiences.
Sources: Holbeche (2022); Nestlé Group (2021)
7.1 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 (Stadler 2011, 264–
271). (Succession management might be viewed as part of the talent management process
of an organization that focuses on the flow of employees – from selection to career
management to exit – through the organization.) The importance of succession
management is discussed in HR Planning Notebook 7.1.1.
HR Planning Notebook 7.1.1: 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 retirement 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 organizations to develop
succession plans.
Companies buy insurance for protection from hurricanes, floods, and fires. Security
systems are installed to defend the company from theft. Data is backed up to an off-site
location to protect it. Succession planning is designed to protect the company from
significant gaps in leadership.
The most prominent potential benefit of workforce planning is associated with decreased
risk of the loss of experienced corporate leaders. In situations of abrupt personnel
changes, the benefits of succession planning become very apparent. There will be less
time and reduced financial expenditure on recruitment and leadership development, as
qualified internal candidates have been already identified and trained. The existence of
effective corporate succession planning diminishes the need for an external search of
qualified candidates for a particular position. Another benefit of succession planning is
that it helps the company build a brand identity. By identifying and grooming an internal
successor, the company ensures it will be led by someone who shares its values and
deeply understand the company’s brand promise, its customers, and its employees
because that person has lived it themselves. 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
executive 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.
Sources: IMD - International Institute for Management Development (2021); Zanfardino
(2018); Stadler (2011, 264–271); Mikesell (2018)
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—the "mission critical positions," those executives
whose departure would seriously impact the organization
3. Critical roles based on long-term value to the organization (such as scientists or
customer relationship specialists) (Conlon and Smith 2010, 52–55)
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 (Paradise 2010, 60–61). The first priority of any succession management
program is to have a plan to replace an organization's leaders. Organizations with positive
reputations for leadership brands tend to outperform their peers (McLaughlin and Mott
2010, 13–19).
As Peter Drucker says, the ultimate test of good management is succession management,
ensuring that there is a replacement for the CEO (Drucker 1998, 152–177). Organizations
must prepare for expected and unexpected turnover, for key players die, retire, or quit. 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 this negative effect can last up to two years
(Behn et al. 2006, 32–45). 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. Video 7.1 explains how the Rogers succession battle began when
Edward Rogers, son of the company's late founder Ted Rogers, was removed from the
executive board after the current CEO discovered a plot to unseat him.
Video 7.1 Succession at Rogers [3]
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. While the majority of leaders believe that succession management is an “urgent”
or “important” priority, few believe that they are doing it well (Routch, Monahan, and
Doherty 2018). The Society for Human Resource Management surveyed its members in
2021 and 56 percent said their organization didn't have a succession plan in place. Only 21
percent reported having a formal plan, while 24 percent said their organization had an
informal plan (Tyler 2022). About one-half of the HR managers don’t consider grooming
potential leaders a high priority (Immen 2011, B18).
About one-third of organizations do not have a succession plan (Williams 2020). At a
minimum, firms need to plan for replacements, and personnel planning is the first step in
the march toward sophisticated models of succession management. The next section
traces this evolution. Some reasons for succession management are listed in HR Planning
Notebook 7.1.2.
HR Planning Notebook 7.1.2: 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: Lamoureux (2010, 11–12)
7.2 Evolution of Succession Management
Replacement planning can be defined as the process of identifying short-term and longterm 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 they
suddenly quit to take another job? The events of September 11, 2001, tragically presented
a worst-case scenario. Bond trading firm Cantor Fitzgerald lost 700 of its 1,000 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, and
•
improving the evaluation system.
7.2.1 Broader Focus
The focus of replacement planning is the job, and having a replacement ready to fill that job
if the incumbent dies or quits. This concept refers mainly to the succession and
replacement charts for the high-level or key positions in the organization. Figure 7.3 depicts
a sample replacement chart for executive positions. Each key position is identified with
names of two or three potential successors. The chart also includes codes that indicate
the readiness of each replacement candidate. These could be, for example, codes such as
“PN” for “promotable now” or “ND” for “needs development” or "R" for "retain in current
position." Some replacement charts might also include the retirement or departure date of
the incumbent.
Figure 7.3 Example of a Replacement ChartLong Text Description
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 consists of a periodically updated table of employees who
might be nominated if a need arises. This type of planning focuses on the high-potential
candidates (replacement track stars), all ready to step into vacant positions, and in doing
so sets off a chain effect throughout the organization. This model assumes that people
have single careers within one organization. Thus, replacements are replicas of the current
jobholders.
This planning depends on a stable future, in which the knowledge, skills, attitudes, and
other attributes (KSAOs) of future managers looks pretty much like those of the current
managers. Jobs of the next five to 10 years are assumed to be identical to the existing jobs.
Organizational structures (i.e., how the organization is set up along divisional lines, product
lines, or functional lines) are unchanging, and few new competitors are seen on the
horizon. Obviously, this type of scenario just doesn’t exist for most companies.
In replacement planning, the starting point is the job, whereas in succession management,
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.
Figure 7.4 Hydro One provides an example of how succession planning must adapt to
changing environments. [4]
A case might best illustrate how succession management aligns with strategy. Traditionally,
the goal of a large utility like Hydro One (Figure 7.4) is to provide safe, reliable energy. Its
core competencies are reliability of distribution, measurement of consumption, and the
maintenance of its power plants. However, deregulation and a more competitive
environment forced Hydro One to compete on price and services. Sales and marketing are
the new competencies needed. The strategy changes from providing energy to marketing
energy. Thus, in the long run, Hydro One 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 (Leibman, Bruer, and Maki 1996, 16–29).
7.2.2 Time Horizon
The traditional planning approach was concerned with immediate and short-term
replacements: 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.
However, the pandemic has provided some useful insights into planning. Leaders who
excelled at "business as usual" often performed poorly under the uncertainty of managing
during a pandemic.
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.
7.2.3 Talent Pools
Talent pools are groups of employees, often identified as high-potential individuals, who
are being trained and developed to assume greater responsibilities within the organization.
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 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, organizations have found that their designated backup personnel fill
only 30 percent of the open positions for which they were slotted (Byham 2002, 10–12).
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 (Corporate Leadership Council 2003). 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.
Figure 7.5 Most organizations have a pool of potential replacements for important
positions. [5]
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
(Figure 7.5). But what is the right number of employees to develop? One rule of thumb that
Ulrich and Smallwood use in their consulting and research is that about 10 to 15 percent of
the workforce is high-potential talent (Ulrich and Smallwood 2012, 55–61).
At MDS, a medical supply company, many of the high-potential employees are not aware of
being tracked, because “we [the company's executives] do not want to create a culture in
which some people feel they are special and others feel their potential is not being
recognized” (Immen 2005, C1, C3).
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 giving 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
that their potential will be continually assessed.
Any organization needs a pool of talent and must develop many employees with flexible 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 individual
organizational units. However, given the difficulties of predicting the future, organizations
may be better prepared by developing "puddles" of talent for every position. This evolution
from personnel planning to succession management 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 (Boudreau
and Ramstead 2005, 129–136).
Internal versus External Candidates
A succession management approach should not only depend on internal candidates, but
also track external candidates. Rather than rely on inbred internal managers, the new
generation of succession managers tracks high performers in the external market, thus
ensuring that new skills and ideas flow into the organization. Some large companies recruit
executives from outside the organization. IBM and AT&T, for instance, have recruited over
half of their executives from outside the organization. HR Planning Notebook 7.2.1
compares the advantages and disadvantages of internal and external candidates. The list
of advantages of internal candidates is more robust than the list of advantages of external
candidates, and the reality is that about two-thirds of internal candidates do succeed
(Bernthal and Wellins 2006, 31–40). 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 (Hoskisson, Hitt, and Ireland 2004). 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 (Conlon and Smith
2010, 52–55). 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 (Quigely and Hambrick 2011, 834–859).
Video 7.2 describes how Starbucks is only looking at external candidates for its next CEO.
Video 7.2 Starbucks Looks for New Talent [6]
HR Planning Notebook 7.2.1: Internal versus External Candidates
Advantages of Internal Candidates
•
Organizations have more and better information about internal candidates.
•
Organizations that offer career development and opportunities to internal
candidates increase commitment and retention among their employees.
•
Internally developed leaders preserve corporate culture.
•
Internal candidates can hit the ground running, because they know the organization,
its people, and its processes. Other employees know the internal candidate, and
there is less internal disruption waiting to see who the new executive is and what
changes they will make. Internally chosen executives do not replace those who
report to them as often as external candidates do; externally chosen candidates
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 dollars, 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 compensated 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 transformation or change in strategy.
•
The external candidate brings new knowledge and skills to the organization and
prevents the organization from becoming inbred and stale.
7.2.4 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 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.
Figure 7.6 A manager rates the potential of an employee. [7]
In a succession management approach, several raters give current evaluations on an
employee’s performance (Figure 7.6). Most companies use 360-degree feedback
mechanisms and increasingly use feedback from mentors and coaches (Tonello, McKenna,
and Schloetzer 2021).
HR Planning Notebook 7.2.2 compares replacement planning and succession
management.
HR Planning Notebook 7.2.2: Comparison of Replacement Planning and Succession
Management
Table 7.1 Replacement Planning versus Succession Management
Factors
Replacement Planning Succession Management
Environment
Stable
Dynamic
Focus
Jobs
Strategy
Time frame
6 to 12 months
2+ years
Selection criteria Job experience
Competencies
Appraiser
Immediate manager
360-degree feedback
Selection pool
Internal
Internal and external
Successors
Slated individuals
Talent pools
Development
Limited
Flexible, multiple
7.3 Succession Management Process
The succession management process links replacement planning and management
development. Until recently, in some organizations succession planners worked with one
database, and management trainers worked with another. Now, both databases are
integrated, with succession managers working in strategic planning committees,
performance management groups, and organizational learning and training functions.
The succession management process is simple to understand but difficult to implement.
An overview of the process is presented in Figure 7.7.
Figure 7.7 Steps in the Succession Management ProcessLong Text Description
7.3.1 Align Succession Management Plans with Strategy
Management development must be linked to business plans and strategies. If the business
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 (Eichlinger and Ulrich 1996, 30–
41)?
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 three, five, or 10 years.
Loading...
7.4 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 characteristics
of successful managers: the job-based approach and the competency-based approach.
7.4.1 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 others,
delegating, marketing, or managing finances, will make successful 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 organizations 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 (Lawler 1994, 3–
15).
7.4.2 Competency-Based Approach
Competencies are groups of related behaviours that are needed for successful
performance (Catano et al. 2010). A competency can comprise skills, abilities, knowledge,
and personal characteristics (the ability to motivate others, for example [Kashi and Vaclav
2013, 384–393]). Competencies are measurable attributes that differentiate employees
who are successful from those who are not. These competencies are a collection of
observable behaviours, and they can be “hard” or “soft.” Hard competencies might be the
ability to build new technologies. Soft competencies might be the ability to retain top talent
(Ulrich et al. 2008). 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 capabilities
of individuals drive the business, and business opportunities drive the development 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 Planning
Notebook 7.4.1 presents a list of these characteristics.
HR Planning Notebook 7.4.1: Leadership Competencies
Table 7.2 Leadership Competencies (Adapted from Catano, Hackett, and Wiesner
2019)
Leadership
Competency
Integrity
Strategic thinking
Engagement
Innovation
Accountability
Building the
organizational team
Effective
communication
Results-focused
Description
•
serves with respect; is honest
•
envisions the future, and builds plans and makes
decisions to get there
•
shows passion for the job
•
engages people and partners in developing goals,
executing plans, and delivering results
•
thinks creatively; is open to new ideas and
technologies
•
takes personal ownership and inspires others to do
the same
•
surrounds oneself with excellent talent
•
fosters open communication; listens to others;
speaks effectively
•
is action-oriented
•
maximizes organizational effectiveness
The skills that managers need to possess are endless, and each “expert” develops a
preferred list. These lists could be used as a starting point and then 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 colleagues provide a full discussion of competencies, distinguishing between
several types, as listed in Table 7.3.
Table 7.3 Competency Characteristics (Catano et al. 2010)
Competency
•
Core
•
Role or specific
•
Unique or
distinctive
Characteristic
•
thinking skills, which every member of the
organization is expected to possess
•
business knowledge, which is shared by different
positions within an organization
•
expertise in media relations, which applies only to
specific positions within an organization
Because of rapid changes in the nature of jobs and work contexts, some experts are
advocating that capabilities are a better predictor of success than competencies.
Examples of capabilities include resilience, adaptability, cognitive flexibility, and ability to
manage differences (Holbeche 2022).
7.5 Identify High-Potential Employees
You have likely heard the expression "war for talent," coined by the consulting firm
McKinsey & Company. Talent consists of those employees who can make a difference to
organizational performance (Holbeche 2022). High potentials consistently and significantly
outperform their peer groups in a variety of settings and circumstances (Figure 7.8). While
achieving these superior levels of performance, they exhibit behaviours that reflect their
companies' culture and values in an exemplary manner (Ready, Conger, and Hill 2010).
These are employees with roles and skills that are seen as critical to the organization's
success, or that deliver a disproportionate level of value (Gambill 2021).
Although this section deals only with high-potential employees, many believe that the
definition of talent should include many others, not just potential leaders, who contribute
to the organization. Aviva, the insurance company, provides developmental opportunities
and manages the "vital many," rather than alienating them by focusing on high flyers
(Holbeche 2022).
Figure 7.8 Organizations provide developmental opportunities for high-potential
employees. [8]
After we know what competencies and/or capabilities 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. In the past, these kinds of discussions would be held annually, but the time frame
is shortening. Performance appraisals may be done quarterly; feedback about
performance is typically scheduled weekly.
By concerning themselves with the future direction 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.
But what is a high-potential employee? Assessments usually are based on performance.
High-potential employees consistently exceed expectations. Managers turn to them in
difficult situations with difficult projects (Whiting 2020, 26–28), and these employees are
800 percent more productive than average employees in creating value for the organization
(Holbeche 2022). Generally, about 2–3 percent of the workforce are deemed to be high
performers. But what about assessing capabilities that may emerge in conditions of
volatility and uncertainty, like the pandemic? One management consultant asks, "Potential
for what?" (Barner 2020, 12–13). The consultant distinguishes between potential within the
function (i.e., moving from manager of compensation to director of HR) and potential
outside of the function (for example, moving from HR compensation to manager of sales).
This same consultant also advocates for "trials," where individuals assessed as having high
potential are given a job on a limited scale, not to assess whether they sink or swim, but to
better assess strengths and areas for development.
In HR, we often state that the best predictor of future performance is past performance.
Executives must be able to move beyond descriptions of high-potential employees that use
descriptions such as "they are very bright and very strategic” and “they have the support of
their team” to listing specific achievements (Kessler 2002, 32–45).
7.5.1 Approaches to Identifying Managerial Talent
Organizations use several approaches to identify managerial talent, including temporary
replacements, replacement charts, strategic replacement, and talent management
culture (Joinson 1998, 92–96).
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., vacations, training). Managers who fail to pick a successor may
never be promoted, as no replacements would be ready to succeed them.
Replacement Charts
At the next level, some organizations prepare replacement 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 creates
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
strategically 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.
Strategic Replacement
A more advanced succession management program exists in an organization that is less
inclined to simply 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-degree 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, and others have
likened it to a breath of fresh air (Lenz and Wacker 1997). Employees who had undergone
360-degree feedback reported that they felt their peers often knew better than their
managers how to improve their performance.
Figure 7.9 Those with a talent management culture use conferences to identify talent. [9]
The first 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 approach described next, the managers more actively
scan the environment to identify and retain top talent (Figure 7.9).
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 (Gore 2000, 12). The winners in
the war for talent have developed a talent mindset—that is, they believe that talent matters
and must be developed not only at the top level but at all levels. Managers are committed
to defining and modelling an employee value proposition that answers the question, “Why
would a talented person want to work here?”
An employer brand is a set of attributes, often intangible, that distinguish an employer from
others. The main elements of an employer brand are the mission, ethics, and values. IKEA
selects applicants based on values and cultural fit (Holbeche 2022). The employee “brand”
is managed as much as the company brand (Figure 7.10). The organization wants its
reputation (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.
Refer to HR Planning Today 7.5.1 for a discussion of brand positioning to attract and retain
employees.
Figure 7.10 IKEA selects candidates based partially on cultural fit. [10]
HR Planning Today 7.5.1: Building the Brand: An Employee Value Proposition (EVP)
Some companies develop an employee value proposition (EVP) that will help attract and
retain employees. They base this EVP on concepts 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
Organizations with a strong employer brand experience lower hiring costs and reduce
turnover. Several studies have shown that the majority of candidates research the
reputation of a company, and would not accept a job in an organization with a bad
reputation. Companies that have won awards for their employer brands include SAP,
Salesforce, Zappos, HubSpot, Google, and Capital One.
Sources: Cliffe (1998, 18–19); Hood (2001, 17–21); Wilson (2010)
Organizations with employer brands outperformed others in three critical areas: revenue,
net income, and share price (McLaughlin and Mott 2010, 13–19). 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 highpotential candidates (Joinson 1998, 92–96).
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 “executivein-residence” and give them a special project to manage until a vacancy arises (Immen
2005). As stated by David Guptill, former vice-president of HR for Lafarge Canada, a large
supplier of construction materials, "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 strategic 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" (Guptill 2003, 16).
The process of continually searching for talent is correlated with success. A McKinsey &
Company 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 averageperforming companies (Yancey 2001, 24–27). These talent management companies
analyze turnover 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 planning for
highly predictable jobs such as accounting, and talent management to deal with rapid
changes in strategic needs.
Assessing Employees
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 next
three moves and the kinds of career experiences needed for these moves (Fulmer, Stumpf,
and Bleak 2009, 17–22). HR Planning Notebook 7.5.1 contains a brief description of
common assessment methods.
However, the use of annual reviews of talent can result in a mechanical approach that
leads to the goal of completing the forms provided by HR, rather than to quality dialogues
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, or
•
information about the best players is withheld as executives want to own this talent.
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 company wide interests prevail” (Kessler 2002, 34).
HR Planning Notebook 7.5.1: 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 subordinates 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 purposes so that gaps in performance can be closed. Highpotential employees are tracked in this way using a standardized organizational
assessment tool. Managers are forced to identify high-potential 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. Simulations include negotiating a merger, handling the
press, managing interdepartmental conflicts, or making a decision without all the
facts. Trained and experienced managers observe the candidates’ 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 fictitious company they will manage
for a day. All testing, correspondence, and decisions are completed 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, abilities, and performance evaluations. Employees’ interests and career
objectives may also be recorded. Basic matching to identify high-potential
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.
7.6 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” (Walter 1996, 89).
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 surveyed will need
to hire an outsider because no insider has been developed to assume the CEO role
(Anonymous 2015).
In Video 7.3, the Impact Group's CEO discusses why encouraging hiring women in
business for leadership roles makes sense.
Video 7.3 Women in Leadership Roles [11]
Some organizations do prefer to pick up their needed executive talent by buying it on the
open market. The CEO of Expedia was hired by Uber, and the CEO of eBay became
president of Macy's. Selecting outsiders allows companies to bring in fresh perspectives –
people who can lead the organization through a transformation. External CEOs are better
positioned to make changes to strategy, operations, and culture (Larcker and Tayan, n.d.).
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 organization 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 they were hired) (Charan 2016, 52–66). Plus,
external hires are paid about 15 percent more than internal hires, with little evidence that
they produce better results. Companies that hire external CEOs are generally in worse
operating condition and require substantial change. However, the research on whether
external CEOs perform better than internal CEOs is mixed, especially when controlling for
the relatively poor financial performance of the firm (Larcker and Tayan, n.d.).
Most large organizations have formal management development programs to ensure a
ready supply of “promotables.” Let us look at some of the methods such organizations use.
7.6.1 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 (Figure 7.11).
Figure 7.11 Promotions are a traditional way to develop employees. [12]
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 them in a new
department every few weeks, providing an overview of the organization. The former CEO of
Maritime Life Insurance, now owned by Manulife, 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 (Black 2002, 17).
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 (Figure 7.12) . Almost all the research suggests that job rotation makes
employees more satisfied, motivated, involved, and committed (Campion, Cheraskin, and
Stevens 1994, 1518–1525).
Figure 7.12 Rotations allow employees to learn and develop networks. [13]
From the organization’s standpoint, rotations are useful for orientation and career
development. Rotations allow an employee to increase their 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 positions. An
information technology specialist, before a rotation in sales, might try to sell their 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 department, 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 (Horwitt 1997, 39–43). 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 management
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 the
employee’s 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 (Horwitt 1997, 39–43). 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, putting stress on the
unit managed by rotation (Cheraskin and Campion 1996, 31–38).
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 another country with a vendor to the
company (Figure 7.13).
Figure 7.13 International assignments are an intensive way to develop executives. [14]
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, with derailment from the fast track. Recognizing the value of
experiences, even negative ones, is important.
For example, there is a story about the executive called into their boss’s office expecting to
be fired because of a business decision that cost the company a million dollars. The CEO
instead gives them another special assignment, reasoning, “Why should we fire you? We
just invested 1 million dollars 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 that they may not have the skills 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 business 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 an 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 (Dahl 1997, 69–78). In this text, 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.
Figure 7.14 Training opportunities range from one-hour workshops to two-year MBA
programs. [15]
The majority of companies use traditional and passive instructional techniques and rate
them least effective, but they are fast and easy to use (Figure 7.14). Most use lectures,
seminars, and discussion groups more often than behaviour modelling and experiential
learning (refer to Sak and Haccoun [2019] for a fuller discussion of these methods). 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 development. 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 them aware of the political open doors and open pits of
the organization. Studies show that protégés 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.)
(Haynes and Ghosh 2008, 3–7). 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, micromanagement, risk
aversion, volatility, and low tolerance for ambiguity) (Byham 2002, 10–12).
Figure 7.15 Many organizations have established formal mentoring programs. [16]
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 (Figure 7.15). For example, at Zurich Canada, there are several
mentoring programs: one to support new managers and others that match participants
with senior managers and managers with executives. (Canadian HR Reporter 2021). 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 (Butyn 2003, 13). These programs link executives 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 with opportunities to interact on projects with senior
managers (Hewitt Associates 2005). Mentors are almost always more senior people who
volunteer to be mentors within an organization, while coaches tend to be paid counsellors
from outside the organization. Internal mentors are best for strengthening and assuring
continuity of organizational culture (Haynes and Ghosh 2008, 3). Remote work has
accelerated the need for mentoring and coaching in order to build strong professional
relationships within the organization.
HR Planning Notebook 7.6.1 illustrates how organizations move through the stages of
establishing coaching as part of the culture of the organization.
HR Planning Notebook 7.6.1: Evolution of a Coaching Culture
1. Incidental. The organization accepts random coaching relationships with no
attempt at vetting coaches or matching coaches to protégés.
2. Centralized. Coaching arrangements are handled from a central source, with
guidelines and a budget.
3. Measurement. Metrics are established to determine the effectiveness of the
coaching program.
4. Strategic. Coaching is part of a talent management program, linking organizational
objectives and competencies.
5. World Class. Coaching is part of the company's culture; seen as an essential part
of employee development; and practised regularly, both formally and informally.
Source: The Conference Board Inc. (2016)
The benefits of external coaches for both the organization and the individual are described
in Table 7.4. 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 (Kambit 2010, 43–45).
Table 7.4 Benefits of External Coaches (Hyatt 2003, 14–17; Voisin 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
Compress learning time to optimize skills by
Guide individuals and
building competencies faster through one-on-one
organizations through transition
coaching
Change skills and attitudes for
long-term sustainable results
Compress learning time to optimize skills by
building competencies faster through one-on-one
coaching
Give new perspectives on
business experience and
practices
Translate leadership theories and concepts into
“useful insights” to affect communication,
decision making, and overall strategies
While it is necessary for discussion purposes to separate management development
methods, all companies will use a combination of methods. Some focus on formal
programs, 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, used the
3E Model: 70 percent of development occurred 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) (Chatman, O'Reilly, and Chang 2005, 137–167). The choice of 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; and shadowing an IT employee is not the best way to learn about IT.
Figure 7.16 presents the most common leader development activities and how HR
managers rate their effectiveness.
Figure 7.16 Use and Effectiveness of Leader Development Activities (Bernthal and Wellins
2006, 35)
Some companies follow these processes but press the fast-forward button for candidates
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;
•
are given stretch assignments;
•
receive more training;
•
are given developmental activities designed especially for them;
•
are assigned a mentor; and
•
are not guaranteed promotion (Busine and Watt 2005, 225–237).
Companies that offer a variety of development opportunities establish reputations and
often make the lists of "best companies to work for." In Canada, these organizations
include PepsiCo, IBM, General Electric, Procter & Gamble, Petro-Canada, and Manulife
Financial (Pitts 2005, B11). In 2022, the top five companies to work for in Canada are Dell
Technologies, Keg Restaurants, Roche, Ciena, and Google (Glassdoor 2022). Headhunters
go to these companies to poach new leadership blood. These top companies for leaders
offer many benefits, as outlined in HR Planning Notebook 7.6.2. Does this mean that
companies risk losing leaders if they invest in them? Not necessarily, according to research
by Canadian professors Jack Ito and Celeste Brotheridge, who concluded that supervisory
support for career development strengthens employees' intentions to stay (Ito and
Brotheridge 2005, 5–19). 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.
HR Planning Notebook 7.6.2: Best Practices for Developing Leaders
Companies offer these experiences to become top companies for leaders:
•
Working abroad/international experiences
•
360-degree feedback to assess and critique leadership attributes, skills, and traits
•
Assessment centre solely for leadership development of high potentials
•
Mentor with admired senior leader
•
Rotational job assignments
•
Spending 10 to 24 percent of top leadership’s time on talent management issues
•
Organization has special/different career development process to retain high
potentials
•
Organization prepares specific development plans for high potentials
•
Organization makes lateral moves attractive to high potentials
Source: Donlon (2007, 58–62)
7.7 Monitor Succession Management
Some succession plans are placed on an executive’s top shelf, ready to be dusted off to
prepare 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 compare the number of predicted “highpotential replacements” with the actual number of those placed in the position. For
example, in Canada, organizations have reported that they have 0.59 designated job-ready
or nearly-ready successors for every senior executive position (The Conference Board of
Canada 2017, 83). However, if the needs of the business change dramatically, this may be
a poor way of measuring effectiveness. 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 process (Bernthal and Wellins 2006, 31–
40)
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
•
More positive assessment of the quality of preparedness for new roles
•
Increased number of bosses skilled as talent developers (Corporate Leadership
Council 2003; Fulmer 2005, 17–18)
The above measures need benchmarks, perhaps simply improvements over the previous
year for the organization. For example, one benchmarking organization suggests that
effective organizations have 1.6 candidates for each key role (Anonymous 2010, 13–15).
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. Topperforming companies allocate 20 percent of executive bonuses to leadership
development and assess them on the ability to retain this talent (Hewitt Associates 2005).
One expert asked, “If this process worked perfectly and everything happened the way it
was supposed to happen, what would the results look like?” (Borwick 1993, 109–114). The
answer? Employees would receive regular feedback based on the assessment process and
would participate in development plans. The best result would be an organization with
skilled employees prepared to contribute to the goals of the organization under changing
conditions. Organizations measure 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 programs are higher performers
measured by revenue growth, profitability, and market share (Willins and Byham 2001, 98–
106).
Another international study (Bernthal and Wellins 2003) 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 time frame for achieving planned action
•
Flexible adjustments to changes in strategic plans
•
Sharing of information about the nomination process performance and rankings
with identified candidates
•
Visible support from top management
•
Involvement of line management in the identification and development of
candidates
Figure 7.17 provides a summary of a succession management process and provides a
scale to rate the success of the program.
Figure 7.17 Succession Management Checklist (Rate the Success of your Succession
Planning) [17]Long Text Description
So far, we have examined succession management from the organizational perspective.
We will now consider the employee’s perspective.
7.8 Employee and HR Role in Succession Management
7.8.1 The Employee Role
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 (Figure
7.18). A top-down approach treats employees as pieces in a chess game. But employees
are not pawns; their voices need to be heard.
Figure 7.18 An employee has a responsibility to update their skills as part of their own
career planning. [18]
The first consideration is that an employee’s relationship with any organization is not
permanent. Indeed, the balance of power has shifted to the employee, particularly after
the pandemic and during the resultant labour shortages. The primary reason that
employees quit is for career growth opportunities (Holbeche 2022). The employee can quit,
or the employer can terminate them. Today’s new employment 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 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 (Hall and Moss 1988, 22–37). 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. Careers
become less about paths and promotions and more about experiences and gaining skills.
HR Planning Notebook 7.8.1 contains a comparison of the two concepts of career
management.
HR Planning Notebook 7.8.1: Traditional and Emerging Career Management Concepts
CHARACTERISTICS
TRADITIONAL
EMERGING
Employment contract Implicit
Explicit
Duration
Long term
Useful term
Career resposiblity
Employer
Self-directed
Career identity
Organization
Profession/occupation
Benefits
Focus on security
Focus on experience
Loyalty
To the organization
To profession, friends, family
Mindset
Inward, political
Outward, entrepreneurial
Development
Formal training
Work experiences
Career progression
Vertical
Employment stability Job security
Horizontal
Employability
Role of manager
Control/coordination Coach
Career goal
Corporate success
Meaningful contributions
Sources: Hall and Moss (1988, 22–37); Craig and Hall (2005)
This transactional view of employer–employee relationships suggests that as organizations
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 enthusiastically 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 (resulting 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
experience. Managerial preferences cannot be the sole determinant in employee
development. Career counselling and discussions at performance appraisal time will help
ensure that the employee’s voice is heard. While organizations cannot promise lifetime
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
development plan. Employees are very aware of their strengths and weaknesses and their
preferred learning styles. One employee might suggest that they could learn decision
making by being given a leadership role; another might prefer a seminar on decision
making. Some organizations, such as Ford Financial, which has 20,000 employees around
the world, provide information 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 competencies 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 (Greengard 2001, 42–46).
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.
7.8.2 The HR Role: Managing Talent
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 succession 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 (Lockwood 2006, 1–12).
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
L.O. 7.1 Executives in any organization must develop the next generation of leaders. The
systematic process of determining critical roles within an organization and developing
employees to be selected for these roles is referred to as succession management.
L.O. 7.2 The process of identifying short-term and long-term emergency backups to fill
critical positions is known as replacement planning. Replacement planning has given way
to succession management as a result of increasing the scope, expanding the time
horizon, creating a replacement talent pool, and improving the evaluation system.
L.O. 7.3 The following steps are included in the five-step model of effective succession
management: (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.
L.O. 7.4 Organizations are shifting to a competency-based approach in which individuals'
capabilities are prioritized. Competencies are quantifiable characteristics that distinguish
employees who are successful from those who are not. Given an uncertain future in which
skill requirements change rapidly, succession management should prioritize competency
development. According to the job-based approach, employees with significant
management experience and job skills such as motivating others, delegating, marketing, or
managing finances will be successful managers.
L.O. 7.5 Employees with talent are those who can make a difference in the performance of
the organization. In a variety of settings and circumstances, high potentials consistently
and significantly outperform their peers. They exhibit behaviours that reflect their
companies' culture and values in an exemplary manner while achieving these superior
levels of performance. Temporary replacements, replacement charts, strategic
replacement, and talent management culture are four approaches to identifying
managerial talent.
L.O. 7.6 The five management development methods each have advantages and
disadvantages. Promotions, job rotations, special assignments, and action learning are the
most common methods of development. The more experiential (activity-based) methods
are generally more effective for developing leaders.
L.O. 7.7 There are difficulties in measuring the success of a management succession
plan. Organizations should assess succession management effectiveness by comparing
the number of potential replacements to the actual number of people placed in the
position.
L.O. 7.8 The employee’s role in the succession management process is important, as is
HR's role. The traditional employment contract with the organization was based on the
implicit understanding that the employee would work hard and develop additional skills
that were primarily provided by the employer. Today's career model may be viewed as
transactional, with benefits and contributions exchanged for a limited time. The HR
function has the overall responsibility for the succession management process. To mitigate
three types of risk to an organization, HR should own the talent management process.
Glossary
Employee value proposition (EVP) The unique set of rewards and benefits that an
employee receives in return for the skills, capabilities, and experience they contribute to
the 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.
High potentials Employees who consistently and significantly outperform their peer
groups in a variety of settings and circumstances.
Mentors Executives who coach, advise, and encourage junior employees.
Promotion An employee’s upward advancement in the hierarchy of an organization.
Replacement planning The process of identifying short-term and long-term emergency
backups to fill critical positions.
Succession management The systematic process of determining critical roles with the
organization, identifying and evaluating possible successors, and developing them for
these roles.
Talent pools Groups of employees, often identified as high-potential individuals, who are
being trained and developed to assume greater responsibilities within the organization.
References
Anonymous. 2010. “2010 Benchmarks: Key Measures to Monitor.” HR Focus 87 (1): 13–15.
Anonymous. 2015. “Few Employees Waiting in the Wings.” HR Professional. Robert Half
Management Resources. Accessed August 23, 2022. https://press.roberthalf.com/201508-27-FEW-EMPLOYEES-WAITING-IN-THE-WINGS-Survey-Suggests-Succession-PlansLacking-at-All-Levels.
Barner, R. 2020. “6 Steps for Succeeding with Succession." Training 57, no. 1 (Jan/Feb): 12–
13. Accessed August 23, 2022. https://trainingmag.com/6-steps-for-succeeding-withsuccession/.
Behn, B. K., D. D. Dawley, R. Riley, and Y. Yang. 2006. “Deaths of CEOs: Are Delays in
Naming Successors and Insider/Outsider Succession Associated with Subsequent Firm
Performance?” Journal of Managerial Issues 18 (1): 32–45.
https://www.jstor.org/stable/40604523.
Bernthal, A., and R.S. Wellins. 2003. The Leadership Forecast: A Benchmarking Study.
Pittsburgh, PA: Developmental Dimensions International.
Bernthal, P., and R. Wellins. 2006. “Trends in Leader Development and
Succession.” Human Resource Planning 29 (2): 31–40.
Black, B. 2002. “CEOs Talk.” Canadian HR Reporter (October 7): 17.
Borwick, C. 1993. “Eight Ways to Assess Succession Plans.” HRM Magazine 38 (4): 109–
114.
Boudreau, J. W., and P. M. Ramstead. 2005. “Talentship, Talent Segmentation, and
Sustainability: A New HR Decision-Science Paradigm for a New Strategy
Definition.” Human Resource Management 44, no. 2 (Summer): 129–136.
https://doi.org/10.1002/hrm.20054.
Busine, M., and B. Watt. 2005. “Succession Management: Trends and Practices.” Asia
Pacific Journal of Human Resources 43, no. 2 (August): 225–237.
https://doi.org/10.1177/1038411105055060.
Butyn, S. 2003. “Mentoring Your Way to Improved Retention.” Canadian HR
Reporter (January): 13.
Byham, W.C. 2002. “A New Look at Succession Management.” Ivey Business Journal 66, no.
5 (May/June): 10–12.
Campion, M. A., L. Cheraskin, and M. J. Stevens. 1994. “Career-related Antecedents and
Outcomes of Job Rotation.” Academy of Management Journal 37, no. 6 (December): 1518–
1525. https://psycnet.apa.org/doi/10.2307/256797.
Canadian HR Reporter. 2021. “2021 Best Places to Work.” Accessed August 19, 2022.
www.hrreporter.com/best-in-hr/best-places-to-work/360215.
Catano, V. M, R. D. Hackett, and W. H. Wiesner. 2019. Recruitment and Selection in
Canada, 7th ed. Toronto, ON: Nelson Education.
Catano, V. M., S. F. Cronshaw, W. H. Wiesner, R. D. Hackett, and L. L. Methot.
2010. Recruitment and Selection in Canada, 4th ed. Toronto, ON: ITP Nelson.
Charan, R. 2016. “The Secrets of Great CEO Selection.” Harvard Business
Review (December): 52–66.
Chatman, J., C. O’Reilly, and V. Chang. 2005. “Cisco Systems: Developing a Human Capital
Strategy.” California Management Review 47, no. 2 (Winter 2005): 137–167.
https://doi.org/10.2307/41166299.
Cheraskin, L., and M. A. Campion. 1996. “Study Clarifies Job Rotation Benefits.” Personnel
Journal (November): 31–38.
Cliffe, S. 1998. “Winning the War for Talent.” Harvard Business Review 76, no. 5
(September/October): 18–19.
Conlon, R., and R. V. Smith. 2010. “The Role of the Board and the CEO in Ensuring Business
Continuity.” Financial Executive 26 (9): 52–55.
link.gale.com/apps/doc/A243279219/AONE?u=anon~b36daaf3&sid=googleScholar&xid=2
8f47d7c.
Corporate Leadership Council. 2003. Hallmarks of Leadership Success: Strategies for
Improving Leadership Quality and Executive Readiness. New York, NY: Corporate Executive
Board.
Craig, E. F. and D. T. Hall. 2005. “The New Organizational Career: Too Important to Be Left to
HR?” In Reinventing HRM: Challenges and New Directions, edited by R. J. Burke and C. L.
Cooper.
Dahl, H. L. 1997. “Human Resource Cost and Benefit Analysis: New Power for Human
Resource Approaches.” Human Resource Planning 11 (2): 69–78.
Donlon, J. P. 2007 "Best Companies for Leaders." Chief Executive (December): 58–62.
Drucker, P. 1998. “Management’s New Paradigms.” Forbes (October): 152–177.
Eichlinger, B., and D. Ulrich. 1996. “Are You Future Agile?” Human Resource Planning 11
(2): 30–41.
Fulmer, R. M., S. Stumpf, and J. Bleak. 2009. “The Strategic Development of High Potential
Leaders.” Strategy and Leadership 37 (3): 17–22.
https://doi.org/10.1108/10878570910954600.
Fulmer, R. M. 2005. “Keys to Best Practice Succession Management.” Human
Resources (October): 17–18.
Gambill, T. 2021. "How To Know If You Are A High-Potential Employee." Forbes. Accessed
July 10, 2022. https://www.forbes.com/sites/tonygambill/2021/06/22/how-to-know-if-youare-a-high-potential-employee/?sh=2d6ff70b4599.
Glassdoor. 2022. “Glassdoor’s Best Places to Work Canada List
Revealed." Glassdoor (blog). www.glassdoor.com. February 24, 2022.
https://www.glassdoor.com/blog/best-places-to-work-canada-revealed/.
Gore, N. 2000. “Managing Talent Replaces Static Charts in a New Era of Succession
Planning.” Canadian HR Reporter 13, no. 15 (September): 12.
Greengard, S. 2001. “Make Smarter Business Decisions: Know What Employees Can
Do.” Workforce 80, no. 11 (November): 42–46.
Guptill, D. 2003. “HR Leaders Talk.” Canadian HR Reporter (February): 16.
Hall, D. and J. E. Moss. 1988. “The New Protean Career Contract: Helping Organizations
and Employees Adapt.” Organization Dynamics (Winter): 22–37.
https://doi.org/10.1016/S0090-2616(98)90012-2.
Haynes, R.K., and R. Ghosh. 2008. “Mentoring and Succession Management: An Evaluative
Approach to the Strategic Collaboration Model.” Review of Business 28, no. 2 (Winter): 3–7.
Hewitt Associates. 2005. “Research Highlights: How the Top 20 Companies Grow Great
Leaders.” Research Highlights. Toronto. Hewitt Associates.
Holbeche, L. 2022. Aligning Human Resources and Business Strategy, 3rd ed. Routledge.
https://doi.org/10.4324/9781003219996-2.
Hood, S. 2001. “The PR of HR.” HR Professional (February/March): 17–21.
Horwitt, L. 1997. “It’s Your Career: Manage It.” Network World (March 17): 39–43.
Hoskisson, R. E., M. A. Hitt, and R. D. Ireland. 2004. Competing for Advantage. Mason, OH:
Thomson South-Western.
Hyatt, L. 2003. “Best Practices for Developing Great Leaders.” Workplace Today (January):
14–17.
IMD-International Institute for Management Development. 2021. “The 4 Key Benefits of a
Succession Planning in 2021.” Accessed August 23, 2022. https://www.imd.org/imdreflections/reflection-page/benefits-of-succession-planning/.
Immen, W. 2005. “Rising Stars Get a Chance to Shine.” The Globe and Mail (November): C1,
C3.
Immen, W. 2011. “Getting the Jump on the Fast Track.” The Globe and Mail (June): B18.
Ito, J., and C. M. Brotheridge. 2005. “Does Supporting Employees’ Career Adaptability Lead
to Commitment, Turnover or Both?” Human Resource Management 44, no. 1 (Spring): 5–
19. https://doi.org/10.1002/hrm.20037.
Joinson, C. 1998. “Developing a Strong Bench.” HRM Magazine (January): 92–96.
Lamoureux. K. 2008. “Developing Leaders.” Leadership Excellence 25, no. 7 (July): 11, 12.
Kambit, A. 2010. “Developing the Next Generation of Leaders.” The Journal of Business
Strategy 31 (2): 43–45. https://doi.org/10.1108/02756661011025062.
Kashi, K, and F. Vaclav. 2013. “Managers’ Core Competencies.” European Conference on
Management, Leadership and Governance (November): 384–393.
Kessler, G. C. 2002. “Why the Leadership Bench Never Gets Deeper: Ten Insights About
Executive Talent Development.” Human Resources Planning 25 (1): 32–45.
Larcker, D., and B. Tayan. n.d. “Internal vs. External CEOs Research Spotlight.” Stanford
Business, Corporate Governance Research Initiative.
https://www.gsb.stanford.edu/sites/default/files/publication-pdf/cgri-research-spotlight08-internal-versus-external-ceos.pdf.
Lawler, E. E. 1994. “From Job-based to Competency-based Organizations.” Journal of
Organizational Behaviour (15): 3–15. https://doi.org/10.1002/job.4030150103.
Leibman, M., R. Bruer, and B. R. Maki. 1996. “Succession Management: The Next
Generation of Succession Planning.” Human Resources Planning 19 (3): 16–29.
Lenz, S. S., and S. Wacker. 1997. “Career Development in an Uncertain World.” Paper
presented at the Human Resource Planning Society Symposium. Ithaca: New York.
Lockwood, N. “Talent Management: Driver for Organization Success.” HR Magazine 51, no.
6 (June 2006): 1–12.
McLaughlin, B., and C. Mott. 2010. “Leadership Brand Equity: HR Leaders’ Role in Driving
Economic Value.” Strategic HR Review 9 (4): 13–19.
https://doi.org/10.1108/14754391011050360.
Mikesell, M. 2018. “Beginner’s Guide to Succession Planning: Steps and Processes Insperity.” Insperity. October 23, 2018. www.insperity.com/blog/succession-planning/.
Nestlé Group. 2021. Annual Review 2021. Accessed August 23, 2022.
https://www.nestle.com/sites/default/files/2022-03/2021-annual-review-en.pdf.
Paradise, A. 2010. “Many Barriers Inhibit Success of Succession Planning.” TD Magazine 64
(6): 60–61.
Pitts, G. 2005. “Need a Leader: Just Look for a GE Graduate.” The Globe and Mail (July):
B11.
Quigely, T. J., and D. C. Hambrick. 2011 “When the Former CEO Stays on as a Board Chair:
Effects on Successor Discretion, Strategic Change and Performance.” Strategic
Management Journal 33: 834–859. https://doi.org/10.1002/smj.1945.
Ready, D. A., J. A. Conger, L. A. Hill. 2010. "Are You a High Potential?" Harvard Business
Review. Accessed August 23, 2022. https://hbr.org/2010/06/are-you-a-high-potential.
Rothwell, W. J. 2002. "Putting Success into Your Succession Planning." Journal of Business
Strategy 23 (3): 32–37. https://doi.org/10.1108/eb040249.
Routch, K., K. Monahan, and M. Doherty. 2018. “The Holy Grail of Effective Leadership
Succession Planning.” Deloitte Insights. September 27, 2018. Accessed August 26, 2022.
https://www2.deloitte.com/us/en/insights/topics/leadership/effective-leadershipsuccession-planning.html.
Saks, A. M., and R. R. Haccoun. 2019. Performance Management through Training and
Development, 8th ed. Toronto, ON: Nelson.
Stadler, K. 2011. “Talent Reviews: The Key to Effective Succession Management.” Business
Strategy Series 12, no. 5 (September): 264–271.
https://doi.org/10.1108/17515631111166906.
The Conference Board of Canada. 2017. Talent Management Benchmarking, HR Trends and
Metrics, 4th ed.
The Conference Board. 2016. "25 Truths about Executive Coaching." Accessed August 23,
2022. https://www.conference-board.org/topics/executive-coaching/Truths-AboutExecutive-Coaching.
Tonello, M., F. McKenna, and J. D. Schloetzer. 2021. "CEO Succession Practices - The
Conference Board." Accessed June 15, 2022. https://www.conferenceboard.org/topics/ceo-succession-practices.
Tyler, K. 2022. “Succession Planning Is Critical in Uncertain Times.” SHRM. March 9, 2022.
https://www.shrm.org/hr-today/news/hrmagazine/spring2022/pages/succession%20planning%20is%20critical%20in%20uncertai
n%20times.aspx.
Ulrich, D., and N. Smallwood. 2012. “What Is Talent?” Executive Forum (Winter): 55–61.
https://doi.org/10.1002/ltl.20011.
Ulrich, D., W. Brockbank, D. Johnson, K. Sandholtz., and J. Younger. 2008. HR
Competencies Mastery at the Intersection of People and Business. Alexandria, VA: Society
For Human Resource Management.
Voisin, G. 2001. “When to Use an Internal or External Coach.” HR Professional (June/July):
30–33.
Walter, G. 1996. “Corporate Practices in Management Development.” Conference Board,
Report No. 1158-96-RR. New York: Conference Board Inc., 89.
Whiting, A. 2020. “Building a Strong Succession Plan during the Pandemic.” Leadership
Excellence; Aurora 37, no. 12, (Dec 2020): 26–28. Accessed August 19, 2022.
www.hr.com/en/resources/coronavirus/building-a-strong-succession-plan-during-thepande_ki8w7sd1.html.
Williams, C. 2020. “How to Avoid Talent Gaps with Data-Driven Succession Planning."
Visier Inc. Accessed August 20, 2022. www.visier.com/blog/how-to-avoid-talent-gaps-withdata-driven-succession-planning/.
Willins, R., and W. Byham. 2001. “The Leadership Gap.” Training 38, no. 5 (March): 98–106.
Wilson, A. 2020. “10 Awesome Employer Brands (and What Makes Them Great)."
Workstars. Accessed August 23, 2022. www.workstars.com/recognition-and-engagementblog/2020/02/27/10-awesome-employer-brands-and-what-makes-them-great/.
Yancey, G. B. 2001. “Succession Planning Creates Quality Leadership.” Credit Union
Executive Journal 41, no. 6 (November/December): 24–27.
Zanfardino, K. 2018. “Benefits of Succession Planning - Why It’s so Important Insperity.” Insperity. Accessed August 23, 2022. https://www.insperity.com/blog/benefitsof-succession-planning/.
Credits
[1] Image by Jacob Lund/Shutterstock.com
[2] Image by inma santiago on Unsplash
[3] Video courtesy of Global News/YouTube
[4] Image by JHVEPhoto/Shutterstock.com
[5] Image by Konstantin Chagin/Shutterstock.com
[6] Video courtesy of Yahoo Finance/YouTube
[7] © iStock/Thinkstock.com
[8] Image courtesy of Rawpixel Ltd under CC BY 2.0
[9] Image by Headway on Unsplash
[10] Image by NP27/Shutterstock.com
[11] Video courtesy of Yahoo Finance/YouTube
[12] Image by fizkes/Shutterstock.com
[13] Image by Christina @ wocintechchat.com on Unsplash
[14] Image by Smartworks Coworking on Unsplash
[15] Image by Ivanko80/Shutterstock.com
[16] Image by Christina @ wocintechchat.com on Unsplash
[17] From William J. Rothwell, "Putting Success into Your Succession Planning," Journal of
Business Strategy, 23(3), 32-37. Copyright © 2002, MCB UP Limited
[18] © Rido/Shutterstock.com
Case Study 1: The People Development Framework at
Ford of Canada
The automotive sector is undergoing massive change. There is no better time to be working
in the industry – especially in the human resources field. The work to be done over the next
decade will shape the future of the sector.
Ford Motor Company (Ford) is rapidly undertaking the largest transformation in its history
under the Ford+ Plan by expanding battery electric vehicles (BEV) within its product
portfolios, integrating higher levels of software into its vehicles to support autonomous
driving and improve other vehicle functions, and creating exciting user experiences for its
customers that they can’t imagine today.
Intentional steps are being taken to redesign the organization structure and the workforce
to deliver Ford+, to move Ford’s strategic plan into action and reality. The company is
reorganizing the four strategically-important areas: Ford Blue, with iconic brands such as
F150, Bronco, and Mustang; the Model-E division for electric vehicles; Ford Pro, for the
important commercial business and services area; and Ford Next, for the next generation
of technology that will power autonomous driving solutions.
With this massive organizational and technological change underway, there is a simple
truth that remains constant and is known to Ford's Operations and Human Resources
leadership: they achieve results through their people, who deliver great products and
innovation solutions every day. Accordingly, Ford of Canada continues to rely 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.
Personnel development committees (PDCs) are in place to identify and match employee
competencies and career interests to key position needs. Committees exist for three broad
levels of the organization: senior executive, business unit management, and line
management. PDC composition includes managers from all functional business areas to
ensure cross-functional opportunities can be efficiently explored and utilized for employee
development. In conjunction with department managers, PDC members are charged, first,
with the responsibility of identifying employees who demonstrate consistent performance;
outstanding Ford+ leadership abilities; a desire for lifelong learning; and who can adapt to
changing technology applications, work processes, and team structures. The members are
then charged with matching these employees to future positions.
PDCs assess internal candidate bench strength for anticipated key position vacancies
within a one-to-three-year time horizon. Using a visual aid worksheet known as a “T” chart,
employees deemed immediately qualified are plotted on the horizontal section of the “T”
chart, while employees who will be qualified with further development are identified in rank
order in the vertical region of the tool. Using a graphic aid such as a “T” chart allows
leadership teams to understand and compare bench depth for key positions, and supports
constructive discussion with employees seeking advancement or lateral moves, informing
them of development needs to achieve their goals.
Of fundamental importance is the engagement and participation of the individual
employee in their own performance, professional development, and career. In the
performance management area, formal annual reviews have been replaced with a
quarterly “check-in” process that allocates focus on well-being, development, career
aspirations, performance to deliverables over the last quarter, and continuing or new work
needs looking forward to the next quarterly interval. Through consultation during this forum
from their immediate People Leader, the employee is highly participatory and engaged in
defining their current state, help needs, and aspirations, and can obtain feedback from
their People Leader to ensure “on track” alignment with performance expectations and
deliverables as well as future areas of focus.
During this quarterly review process, the Employee Profile template and individual
development plan (IDP) are often used. The Employee Profile acts as an internal resumé to
capture individual employee information for the PDC or hiring manager review and includes
the employee's current position details, previous Ford position history, viewpoint on Ford,
and non-Ford key accomplishments, as well as preferred developmental assignments. The
IDP helps to define areas of interest and opportunity for professional growth and is codeveloped by the employee and their People Leader. While partnership with one’s
supervisor is necessary for alignment of developmental opportunities, use of this tool can
only be successful when an employee take personal ownership for both the formation and
follow through of the development plans.
Of emerging strategic importance for manufacturing PDCs and hiring managers is the
understanding of external labour market forces and the needs of the firm. For example, the
skills and competences that drive success today in internal combustion engine (ICE)
manufacturing may not match the technological and process needs of the firm for electric
vehicle production in the future. As a result, job-related competency assessment, skills
development requirements, and evolution of work factors necessitating technical work
teams are important strategic personnel planning areas to ensure the right person for the
right job at the right time.
Further, the search for qualified candidates for automotive sector roles is being affected by
numerous socio-economic factors, including the effects of the COVID-19 pandemic on the
desire to work, the pace of retirements of long-service employees, competition for external
talent, and scarcity of experienced candidates for leadership and technical roles. As a
result of the changing nature of work and these market forces, PDCs will be required to
view succession over different time horizons and focus efforts to ensure that strong
transfer of knowledge processes, employee development actions, and robust succession
planning tools are in place.
The role of HR in the automotive sector is paramount. At Ford of Canada, the HR
professional is a true business partner of Operations leadership. Their strategic work to
attract and retain top talent who possess the technical competencies for the work
categories needed, to identify succession candidates to lead change, and to foster diverse
teams and create a culture of belonging where all employees contribute their best selves
will be important enablers for excellence in manufacturing and for delivering the Ford+
Plan.
Source: Case prepared by Ron Derhodge, Director, Manufacturing Human Resources, Ford
Motor Company of Canada Limited. September 2022.
Case Study 1: Question 7.1
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.
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 Management
Consulting (EMEND). Ellie Maggio, CEO and managing director of EMEND, describes the
necessary transformed 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, constituent groups 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 management
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, compensation plans,
termination, retirement, organization departure, and transition
•
Review existing replacement plans, performance reviews, and 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
constituent group requirements
4. Develop
•
Create talent review criteria/competency models for executive and critical jobs
•
Develop talent review tool(s) linked to the leadership development program,
performance management process, and executive compensation
•
Develop talent review process steps and timeline for implementation
5. Implement
•
Conduct talent reviews (e.g., 180-degree/360-degree 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, Chief Executive Officer and Managing Director,
EMEND Management Consulting, June 2011
Case Study 2: Question 7.1
What steps might you include or remove from this process?
Case Study 2: Question 7.2
What additional techniques might be used to assess talent?
Case Study 2: Question 7.3
How would this process apply to non-executive succession planning?
Chapter 8: Information Technology for HR Planning
Figure 8.1 Technology continues to have a large impact on the implementation of HR
practices. [1]
Portions of this chapter were adapted from a chapter written by Victor Y. Haines III.
Learning Outcomes
L.O. 8.1 Explain the impact and benefits of technology on HR functions.
L.O. 8.2 Understand the range of technology solutions available to organizations based on
needs and resources.
L.O. 8.3 Understand what is meant by big data, and its implications for HRM.
L.O. 8.4 Differentiate between HR metrics and HR analytics, and understand how each can
be used to help solve business challenges.
L.O. 8.5 Identify specific IT applications for HR planning.
Introduction
Transforming the HR Process through Technology
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” (HRfocus 2007, 1, 11–15). 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 (Ulrich and Brockbank 2005). 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, HR Assessment and Analytics) (Frauenheim 2007, 6–7).
8.1 The Impact of Technology on the HR Function
Greater efficiencies, higher productivity, and a reduction in performing repetitive tasks are
some of the widely discussed benefits of information technology (IT) for HRM. The rapid
advancement in technology and data in business has had a transformational change in
many aspects of the HR function. For example, technology has dramatically increased the
size of the applicant pool for many jobs, where a single opening can lead to hundreds or
even thousands of applicants. Technology has also come to the rescue of the problems
that it has created by providing automated methods to sift through and sort thousands of
applications down to a reasonable number. In this section we discuss some of the many
ways in which technology has transformed major HR activities such as recruitment and
selection, training, performance appraisal, and employee self-service.
8.1.1 Recruitment and Selection
Past methods of searching for a job included activities such as career fairs, job boards,
advertisements in newspapers and trade magazines, networking, and referrals. Social
networking has greatly expanded these activities, and dedicated websites like LinkedIn,
Indeed, and ZipRecruiter provide focal points for both job seekers and employers to
connect. One consequence of these hubs has been a greatly expanded reach for
employers, and a large increase in the number of applications for many jobs. To deal with
very large numbers of applicants, technology has provided solutions to reduce the
applicant pool using keywords and by administering automated online tests to applicants
such as personality and cognitive ability tests. These methods are not perfect, as research
shows that some groups of people score differently on computer-written cognitive ability
tests than on pencil-and-paper cognitive ability tests, so the validity of some of these
testing methods is not certain at this point (Stone et al. 2015, 216–231).
In addition to recruitment, selection has been impacted in many ways. As shown in Figure
8.2, job applicants can be tested online, and interviews can be conducted over rich media
sharing platforms such as Zoom so that candidates may be assessed from almost
anywhere in the world. These changes significantly reduce the cost of the firm's geographic
reach when hiring, leading to an increase in the size of the applicant pool and a decrease in
the costs of selection testing. While the use of virtual job interviews has been on the rise
steadily over the past decade, a survey done by Indeed suggests that most employers
adopted virtual interviews during the pandemic, and that almost all of those adopters plan
to continue the practice either in a hybrid selection system, or through an entirely virtual
selection process (Maurer 2021).
Figure 8.2 Job interviews can be conducted through video-conferencing software. [2]
An issue that technology brings to recruitment and selection is that while the applicant
pool has certainly increased in size, it is not known whether the quality of the applicant
pool has increased. If the use of technology increases the size of the applicant pool but not
the quality, it may actually be increasing the cost of recruitment and selection without
bringing expected benefits such as higher performers or lower turnover. Organizations that
are able to test the validity of their selection methods by using job analysis to understand
job relevant knowledge, skills, abilities, and other attributes (KSAOs), and by measuring
whether changes to selection methods lead to changes in employee performance
or turnover are in a position to benefit from technology in ways that firms without these
capabilities cannot (Stone et al. 2015, 216–31).
Technology also brings the promise of connecting job applicants with employers in ways
that have not yet been explored to their fullest. Applicants seek organizations that fit their
needs and goals; firms that can harness technology to make more frequent personal
connections with job applicants will help those applicants to make more accurate fit
assessments, which should lead to lower turnover and higher job satisfaction. Increasing
the personal interactions between applicants and organizations is one way in which
technology can bring about better recruitment and selection in the future.
8.1.2 Training
Technology has brought many changes to training, mostly by providing training through
electronic means (e-training). The benefits of technology-assisted training include lower
costs, greater convenience for trainees, and more flexibility in training methods. The
research on training suggests that learning is enhanced when people have the opportunity
to practise what they have learned, get feedback on their learning, and interact with others
in the learning process. Learning effectiveness increases when technology is used to
provide these training benefits (Stone et al. 2015, 216–31).
8.1.3 Performance Appraisal
Figure 8.3 Technology can be used to support performance appraisals. [3]
Many organizations today use technology in support of either performance feedback or
performance measurement (Kapoor and Kabra 2014, 50–60) (Figure 8.3). Technology can
be used to increase communication and interaction between raters and ratees. For
example, a primary weakness of goal-based performance appraisals (i.e., management by
objectives) is that the goals established by the employee at the beginning of a performance
period may be very different from the goals at the end of the period. Technology-assisted
performance appraisal can ensure that the supervisor has shared real-time access to
employee goals so that goals can be updated on an ongoing basis to maintain their
relevance. In addition to increasing the frequency of feedback opportunities, technologyassisted performance appraisal has been associated with increased time savings and a
greater focus on employee development.
8.1.4 Employee Self-Service
Overall, technology has had the most dramatic changes on the recruitment and
selection, training, employee performance appraisal, and employee self-service aspects of
the HR function (Stone et al. 2015, 216–31; Wang, Zhou, and Zheng 2022, 1003). While
many of these changes have increased the efficiency of processes, their future
contribution to the strategic impact of the HR function in the organization will be enhanced
as technology allows for greater interaction between the individual and the organization,
and as technology becomes more active in its relationship with the individual. As the
integration of artificial intelligence (AI) and machine learning becomes more prevalent in
the management of human capital, organizations will benefit through increased
performance (Marler and Boudreau 2016, 3–26).
8.2 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
(James 2022). Organizations are in the process of learning how to incorporate HR analytics
to better understand how to improve selection, improve performance, reduce turnover, and
increase the strategic involvement of HRM (Marler and Boudreau 2016, 3–26; Wang, Zhou,
and Zheng 2022, 1003).
8.2.1 Web-Based HR
Web-based HR allows service delivery that pushes employees and managers into making
transactions. Self-service is an important web-based service delivery 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.
8.2.2 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
door, as they offer a web-based access point to all information sources, tools, and systems
needed to consume HR services effectively (Gueutal and Falbe 2005, 190–225). 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.
8.2.3 Self-Service
Figure
8.4 Employees can edit and input data on their personnel files. [4]
Self-service is based on the principle that data is most effectively captured at source. Selfservice allows employees and managers to communicate with and affect databases
(Figure 8.4). 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 selfservice 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. The research on employee self-service
options shows that over 80 percent of large organizations use employee self-service and
that most employees readily accept the use of these system (Stone et al. 2015, 216–31).
8.2.4 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 competencies,
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 available
talent is lacking for adequate succession. Moreover, technology can be leveraged to gauge
client satisfaction with the service levels provided by the HRM department, and electronic
surveys are increasingly being 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 8.2.1 discusses the stages of adoption of HR technology
in organizations. In this section we review these options, as well as enterprise solutions
such as those offered by SAP, BambooHR, Kronos, and APS.
HR Planning Notebook 8.2.1: Stages of HR Technology Adoption
Organizations go through various stages as they incorporate technology to help manage
the workforce. These stages are briefly described below.
•
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 ratings 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 organizations use statistics, such as
turnover data by occupation, to predict employee behaviour, and link it to
organizational outcomes.
These talent management systems (and new integrated HRMS systems) input performance
history, education, job assignments, and tests taken, so these systems are extremely
useful for understanding what drives performance, engagement, and other desirable
outcomes.
Source: Robb (2011)
Human Resources Information System (HRIS)
The human resources information system (HRIS) 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, and 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 lying at the
heart of most computerized HR management work.
Specialty Products
Numerous specialty products are available that enable the automation of discrete tasks
and responsibilities. These 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 compensation planning,
workforce scheduling, managing training and e-learning, and applicant tracking.
Such specialty products may be 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 enterprise resource planning (ERP) base system.
Companies such as Rise offer benefits and payroll software solutions, whereas all-in-one
HRIS service providers like BambooHR provide these capabilities as part of a complete
suite of HRM software solutions.
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
organizational 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. ERP solutions may be on-premise or cloudbased. On-premise ERP solutions are installed locally on a company's hardware, while
cloud-based ERP solutions are managed centrally (i.e., in the cloud) by the ERP vendor
(Schwarz 2016).
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 (Newman and Westrup 2005, 258–272). 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 system
implementation. The ERP approach, however, is often quite costly with a lengthy
implementation, as it involves significant organizational and contextual change (Mabert,
Soni, and Venkataraman 2001, 71–78). 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 (Pollock and Cornford 2004, 31–52).
8.3 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 customer
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
(Shah, Irani, and Sharif 2017, 366–378). 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
four years (Figure 8.5) (IDC 2021).
Figure 8.5 Big data represents the integration and analysis of many different types of data
from a wide variety of data sources. [5]
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 data to develop customer insights grows, so too will the
amount of data (Erevelles, Fukawa, and Swayne 2016, 897–904).
8.3.1 Types of Big Data
Big data is based on many different forms, which can be classified into two basic
categories:
•
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 organized 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 organized into columns and rows. Other
types of structured data include sensor data (e.g., from swipe cards or from
monitoring movement).
•
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.
8.3.2 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 (Erevelles, Fukawa, and Swayne 2016, 897–
904). 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 measurable, the volume of data
available for capture is rapidly expanding (Erevelles, Fukawa, and Swayne
2016, 897–904). In 2016, Cisco estimated that the number of networked devices
(including things such as televisions, thermostats, security cameras, etc.) would
increase from 17 billion in 2016 to 27 billion by 2021 (Cisco 2018). While the
pandemic slowed the growth in the number of devices because of parts shortages,
networked devices continue to grow at almost 20 percent per year (Hasan 2022).
The first resource requirement for organizations 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 (Malik 2013, 1–13). 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 of big data.
4. Veracity. When considering the way that unstructured data might be error-prone
(e.g., the metadata might be incorrect 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 AI 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 significant
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 AI to manage these tasks has become an important aspect of using big data.
8.3.3 Artificial Intelligence and Machine Learning
Artificial intelligence (AI) in general refers to the ability of a piece of software to learn. This
learning can take several forms, ranging range from a reward-based method to
unsupervised, predictive learning. Reinforcement learning, like the kind used on people
and animals, 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
(Anthes 2017, 19–21). This is how IBM taught Deep Blue, its chess computer, to beat world
champion chess masters. As AI matures, it will become increasingly efficient at helping to
sift through big data for relevant insights. However, big data and AI 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 (Figure 8.6).
Figure 8.6 Big data and artificial intelligence present new questions for HR professionals
around data security, individual privacy issues, and ethics. [6]
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 (refer to HR Planning Today 8.3.1 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 AI to aid in decision making.
HR Planning Today 8.3.1: Big Data and HR Segmentation
Have you ever shopped on a website like Amazon.com 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 its
strategy of providing a single stop for all shopping needs was particularly appealing to new
parents, and that if it could make women aware of Target’s value proposition early in
pregnancy, 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 shoppers 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 to try to then 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.
Sources: Hill (2012); Duhig (2012)
8.3.4 Ethics and Big Data
A strength of 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 possible combinations of variables that are
coded in multiple formats.
However, AI lacks transparency around the decision rules that it develops. It cannot explain
the decisions 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 (Sumser 2017)? 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 a department 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
8.3.2 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 statistical analysis packages. These tools may be used in isolation or
combined to form a workforce metrics dashboard.
In Video 8.1 below, Dr. Frank Rudzicz describes the three main ethical concerns in the use
of AI in real-world applications.
Video 8.1 There are ethical concerns with artificial intelligence. [7]
HR Planning Today 8.3.2: 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 performance
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 (more recently expanded to 10) had been
uncovered some time ago, and so the results of the study appeared more confirmatory and
sensible than groundbreaking. 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 millions 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 millions. 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.
Source: Adapted from Bryant (2011); Cappelli (2017)
8.4 HR Metrics and HR Analytics
HR metrics and HR 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
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 dashboards
is to organize key pieces of HR information and present data in ways that are simple to
understand.
HR analytics is still in its infancy. 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 performance, and external
economic benchmarks to establish business impact and enable data-driven decisionmaking" (Marler and Boudreau 2016, 3–26). 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 to capture costs, show length of time of processes, or capture turnover
rates, few are at the point of using HR analytics to show the ultimate impact of HR activities
on organizational outcomes.
The role of HR analytics can be placed into one or more of three categories (Lipkin 2015, 1–
5):
•
Descriptive analytics– describe what happened
•
Predictive analytics– make inferences based on existing data to describe what
could happen
•
Prescriptive analytics– describe what should happen
While HR analytics span all three of these domains, HR metrics function largely within the
first domain of descriptive analytics. The primary distinction between HR metrics and HR
analytics is that HR metrics generally refer to a narrower set of measures that tend to be
restricted to measuring HR outcomes (e.g., cost of recruitment from various sources, 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 (Marler and Boudreau 2016, 3–26). Refer to HR Planning Today 8.4.1 for an
example of the use of HR analytics to connect HR policies with organization strategy.
To date, there are very few studies on HR analytics, and it is estimated that roughly 15
percent of firms are using HR analytics (refer to HR Planning Notebook 8.4.1 for more
discussion on the current state of HR analytics in organizations) (Marler and Boudreau
2016, 3–26). 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 attributable to the
ambiguity in what HR analytics actually is, and how it differs from HR metrics.
HR Planning Today 8.4.1: HR Analytics and Strategy at Lowes
In 2007, Lowes began a project to understand how HR initiatives were impacting bottomline 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 information, customer data, and financial performance data so that Lowes
could find connections not only within the HR function, but also in terms of how each of
these areas of the business combine to affect broad business problems.
The project team included experts from the HR department, 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 psychology and sociology, and of 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 (Figure 8.7):
Figure 8.7 Lowes Project Process
As a result of its 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 its stores. This
knowledge can be used to implement HR initiatives 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.
Source: Coco, Jamison, and Black (2011, 28–33)
HR Planning Notebook 8.4.1: HR Analytics
Some uses of HR 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; and
•
identifying obsolete departments and/or positions.
Despite the power of data to inform decisions, only about 10 to 15 percent of companies
use HR analytics, 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: Wallask (2017); Harvard Business Review (2014); Giller (2014, 31–32)
8.4.1 Maximizing the Benefits of HR Metrics
Dashboards
An HR dashboard is simply an aggregation, in electronic format, of useful or relevant HR
metrics, or key performance indicators (KPIs). The convenience of a dashboard is that it
should be able to incorporate data from multiple information sources, and that it provides
real-time summaries of performance.
Popular measures for inclusion in dashboards are presented in Figure 8.8.
Figure 8.8 Popular KPIs Included in HR Dashboards (Dutta and Bose, 2015) [8]
The purpose of dashboards is to provide managers with a quick understanding of KPIs in
their business. Rather than looking through multiple spreadsheets 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 (Pentland 2012, 62–70). 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 (KPIs)
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 those
that 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 hospitality
industry (Sysco 2021). 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 of 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 (Stricker et al. 2017, 5537–5549).
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 the 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.
8.5 Other Aspects of IT for HR Planning
8.5.1 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.
8.5.2 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 atrisk 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 worker 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 (Matwichuk 2011,
23).
8.5.3 Ensuring Data Security
Figure
8.9 Organizations need systems to protect corporate data. [9]
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 that 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 information
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 (Figure 8.9). Some security features that restrict access include login security, rowlevel security (record security), and field-level security (data field) (Ashbaugh and Miranda
2002, 7–20). Procedures to further protect data include the usage of PINs and passwords;
the usage of encryption devices or software when sending sensitive email; smart cards or
tokens; provision of regular, ongoing education and reinforcement of clearly defined
organizational policies; and turning off systems when they are not in use.
Cybersecurity has become a major concern for organizations, as roughly 20 percent of
Canadian firms reported being affected by incidents in 2019 (Statistics Canada 2022).
Because the majority of cyber attacks come in the form of phishing (Hope 2022), it is
important to provide training for all employees around how to avoid becoming a victim of a
cyber phishing scheme.
Video 8.2 below describes how to identify and avoid a phishing attack – one topic that
should be covered in employee cybersecurity training.
Video 8.2 Phishing [10]
8.5.4 Evaluating HR Technology
User satisfaction and system usage are important indicators of HRIS success (Haines and
Petit 1997, 261–275). 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 usefulness and ease of use (Wixom and Todd 2005, 85–102).
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 8.5.1 may provide useful insights into
HR technology effectiveness.
HR Planning Notebook 8.5.1: Sample Technology Effectiveness Items
•
Attitude
o
•
Usefulness
o
•
Using this HR technology is very enjoyable.
Using this HR technology enhances my effectiveness on the job.
Information satisfaction
o
•
System satisfaction
o
•
•
I am very satisfied with the information I receive from this HR technology.
Overall, my interaction with this HR technology is very satisfying.
Information quality
o
This HR technology produces comprehensive information (completeness).
o
The information provided by this HR technology is well laid out (format).
o
There are few errors in the information I obtain from this HR technology
(accuracy).
o
The information provided by this HR technology is always up to date
(currency).
System quality
o
This HR technology operates reliably (reliability).
o
This HR technology makes information very accessible (accessibility).
o
This HR technology can be adapted to meet a variety of needs (flexibility).
o
This HR technology effectively integrates data from different areas of the
company (integration).
o
This HR technology provides information in a timely fashion (timeliness).
Source: Robb (2011, 77–79)
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" (Meade 2003). 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, database,
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 or timely
manner. For instance, if benefits enrollment takes almost two months, this wait time might
be considered a problem. Some of the questions that may help identify such gaps are
presented in HR Planning Notebook 8.5.2.
Type caption for image (optional)
HR Planning Notebook 8.5.2: Needs Analysis Questions
•
Is the human resources department spending too much time on manual
processing?
•
Are there too many data security risks involved with manual processing?
•
Is the current human resources management system obsolete?
•
Are we able to ensure an adequate follow-up of health and safety incidents?
•
Are we being responsive to current business priorities?
•
Will we be able to keep up with company growth?
•
Are we managing our human capital as a strategic asset?
•
Are we maintaining too much redundant information?
•
Which requests for information is the human resources department unable to
respond to?
•
Would it be more efficient to integrate our different legacy systems into a single
database?
It is also helpful to consider what information requests the HR department responds to,
what reports and documents it uses, what information passes through the HR unit, and
what manual records are maintained—in short, the information processing needs of the
HR function. When needs are clearly determined, it is possible to then measure whether
those needs have been addressed by the technology.
Summary
L.O. 8.1 Technology continues to have a transformative impact on HRM, particularly in the
areas of recruitment and selection, training, performance appraisal, and employee selfservice. New modes of delivering information to employees and managers, and of
gathering information from these sources are helping to fuel the transformation.
Organizations have options as to how deeply they wish to embed the automation and
connection of their HR function to the rest of the organization.
L.O.8.2 An organization's choice of technological solutions for HRM issues is often guided
by access to organizational resources and requirements. Solutions can range from webbased software and specialty products that provide solutions to specific problems or
areas, to broader HR information systems that can span the entire HR function. Large
organizations often look to enterprise resource planning systems that incorporate the HR
information system into a knowledge management system encompassing all aspects of
the organization, ranging from production and operations to sales and customer service.
L.O. 8.3 As data from different sources and in different formats become more available and
accessible, the methods for dealing with the increasing complexity are becoming more
reliant on computers and artificial intelligence. Big data takes many different forms, which
can be divided into two categories: structured and unstructured data. As artificial
intelligence matures, it will become more efficient at detecting meaningful patterns in big
data. Alongside the implications for big data and artificial intelligence in the development
of better HR metrics and HR analytics, the HR function will need to develop policies around
issues such as privacy, security, and the ethics of machine decisions.
L.O. 8.4 HR metrics are useful to demonstrate a snapshot of costs, efficiency rates, or
other summary measures of HR practices. These metrics can be conveniently packaged
into an HR dashboard that managers can use to understand where attention should be
focused on a daily or weekly basis. HR analytics seek to find answers to how processes
work or to uncover connections between HR practices and individual and organizational
outcomes such as performance. HR analytics has the potential to clarify the strategic
contribution of managerial and HR practices and processes.
L.O. 8.5 Information technology can play an important role in developing workforce
schedules and in monitoring the warning signs of compliance or safety issues. However,
data security is an issue that can affect both employee privacy and organizational
performance. Firms must train employees around data security and common forms of
cyber security threats. An audit that includes various measures may provide useful insights
into the effectiveness of HR technology. Behavioral beliefs about the usefulness and ease
of use of technology influence attitudes about information technology.
Glossary
Artificial intelligence (AI) A software-based ability to demonstrate learning and decision
making.
Big data The integration of digitized data from multiple sources and in multiple formats,
including structured and unstructured data.
Business intelligence The applications and technologies for gathering, storing, analyzing,
and providing access to data to help users make better business decisions.
Cloud-based (Of digital data) Stored, managed, and processed on a network of remote
servers hosted on the Internet, rather than on local servers or personal computers.
Enterprise portals Knowledge communities that allow employees from a single or multiple
companies to access and benefit from specialized knowledge associated with tasks.
Enterprise resource planning (ERP) Commercial software systems that automate and
integrate many or most of a firm’s business processes.
HR analytics An evidence-based approach for making better decisions about employees
and HR policies using a variety of tools to report HR metrics and predict outcomes of HR
programs.
HR dashboard An aggregation of useful or relevant HR metrics or performance indicators
that provide a summary snapshot of performance.
HR metrics Summary measures of HR outcomes that are relevant to the performance of
the HR function. Example metrics include the cost of recruitment, time-to-hire, and
turnover rate.
Human resources information system (HRIS) A comprehensive across-the-board
software system for HRM that includes subsystems or modules.
Information technology The hardware and software, including networking and
communication technologies, involved in storing, retrieving, and transmitting information.
Key performance indicators (KPIs) A snapshot measure of system performance that
demonstrates the success of strategy implementation in terms of cost, quality, or time.
Phishing The fraudulent practice of sending emails purporting to be from reputable
companies in order to induce individuals to reveal personal information, such as
passwords and credit card numbers. Relational database A database that can share
information across multiple tables or files, which allows the same information to exist in
multiple files simultaneously.
Self-service A technology platform that enables employees and managers to access and
modify their data via a web browser from a desktop or centralized kiosk.
Specialty products Software solutions for specific specialized applications that may or
may not interface with the main database.
Technology acceptance The extent to which users intend or actually use technology as a
regular part of their job.
Transactional activities Activities such as data entry that require low levels of judgment or
decision-making skills.
References
Anonymous. 2010. “Growing Use of Apps Expanding Operations of HR Professionals.” HR
Focus 87, no. 11 (November): 4–5.
Anthes, G. 2017. “Artificial Intelligence Poised to Ride a New Wave.” Communications of
the ACM 60 (7): 19–21. https://doi.org/10.1145/3088342.
Ashbaugh, S., and R. Miranda. 2002. “Technology for Human Resources Management:
Seven Questions and Answers.” Public Personnel Management 31 (1): 7–20.
https://doi.org/10.1177/009102600203100102.
Bryant, A. 2011. "Google’s Quest to Build a Better Boss." The New York Times. Accessed
March 6, 2018. http://www.nytimes.com/2011/03/13/business/13hire.html?smid=plshare.
Coco, C., 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.
Cappelli, P. 2017. “There’s No Such Thing as Big Data in HR.” Harvard Business
Review. Accessed August 29, 2022. https://hbr.org/2017/06/theres-no-such-thing-as-bigdata-in-hr.
Cisco. 2018. Global Device Growth Traffic Profiles. Accessed August 29, 2022.
https://www.cisco.com/c/dam/m/en_us/solutions/service-provider/vniforecast-highlights/pdf/Global_Device_Growth_Traffic_Profiles.pdf.
Duhig, C. 2012. “How Companies Learn Your Secrets.” New York Times
Magazine. Accessed March 16, 2018.
http://www.nytimes.com/2012/02/19/magazine/shoppinghabits.html?pagewanted=1&_r=1.
Dutta, D., and L. Bose. 2015. “Managing a Big Data Project: The Case of Ramco Cements
Limited.” International Journal of Production Economics 165: 293–306.
https://doi.org/10.1016/j.ijpe.2014.12.032.
Erevelles, S., N. Fukawa, and L. Swayne. 2016. “Big Data Consumer Analytics and the
Transformation of Marketing.” Journal of Business Research 69 (2): 897–904.
https://doi.org/10.1016/j.jbusres.2015.07.001.
Frauenheim, E. 2007. “Keeping Score with Analytics Software.” Workforce Management 86
(10): 6–7.
Giller, J. 2014. “HR Analytics.” HRPAToday (September): 31–32.
Gueutal, H. G., and C. M. Falbe. 2005. “eHR: Trends in Delivery Methods.” In The Brave New
World of eHR: Human Resources Management in the Digital Age, edited by H. G. Gueutal
and D. L. Stone. San Francisco, CA: Jossey-Bass, 190–225.
Haines, V.Y., III, and A. Petit. 1997. “Conditions for Successful Human Resource
Information Systems.” Human Resource Management Journal 36 (2): 261–275.
https://doi.org/10.1002/(SICI)1099-050X(199722)36:2<261::AID-HRM7>3.0.CO;2-V.
Harvard Business Review Analytic Services. 2014. HR Joins the Analytics Revolution.
Harvard Business School Publishing. Accessed August 29, 2022.
https://hbr.org/resources/pdfs/comm/visier/18765_HBR_Visier_Report_July2014.pdf.
Hasan, M. 2022. “State of IoT 2022: Number of Connected IoT Devices Growing 18% to 14.4
Billion Globally.” IoT Analytics. Accessed January 16, 2023. https://iotanalytics.com/number-connected-iot-devices/
Hill, K. 2012. “How Target Figured Out a Teen Girl Was Pregnant Before Her Father
Did.” Forbes. Accessed August 29, 2022.
https://www.forbes.com/sites/kashmirhill/2012/02/16/how-target-figured-out-a-teen-girlwas-pregnant-before-her-father-did/#1802e0966668.
Hope, A . 2022. “67% of Businesses Suffer Repeat Cyber Attacks within 12 Months after the
First Data Breach.” CPO Magazine. Accessed August 29, 2022.
https://www.cpomagazine.com/cyber-security/67-of-businesses-suffer-repeat-cyberattacks-within-12-months-after-the-first-data-breach/.
HRfocus. 2007. “HRIT ‘Report Card’: Trends for 2008 Plans.” HRfocus 84, no. 12
(December): 1, 11–15.
IDC. 2021. “Data Creation and Replication Will Grow at a Faster Rate than Installed Storage
Capacity.” IDC: The Premier Global Market Intelligence Company. Accessed August 29,
2022. https://www.idc.com/getdoc.jsp?containerId=prUS47560321.
James, L. 2022. “Moore’s Law in 2022: What’s the Status Quo?” Power & Beyond. Accessed
August 29, 2022. https://www.power-and-beyond.com/moores-law-in-2022-whats-thestatus-quo-a-dc63a87e669b554d4d33d2a5ba73692a.
Kapoor, B. and Y. Kabra. 2014. “Current and Future Trends in Human Resources Analytics
Adoption.” Journal of Cases on Information Technology 16 (1): 50–59.
https://doi.org/10.4018/jcit.2014010105.
Lipkin, J. 2015. “Sieving Through the Data to Find the Person: HR’s Imperative for Balancing
Big Data with People Centricity.” Cornell HR Review: 1–5.
Mabert, V.A., A. Soni, and M.A. Venkataraman. 2001. “Enterprise Resource Planning:
Common Myths versus Evolving Reality.” Business Horizons (May/June): 71–78.
https://doi.org/10.1016/S0007-6813(01)80037-9.
Malik, P. 2013. “Governing Big Data: Principles and Practices.” IBM Journal of Research and
Development 57: 1–13. https://doi.org/10.1147/JRD.2013.2241359.
Marler, J. H., and J. W. Boudreau. 2016. “An Evidence-based Review of HR
Analytics.” International Journal of Human Resource Management 28 (1): 3–26.
https://doi.org/10.1080/09585192.2016.1244699.
Matwichuk, D. 2011. “HRIS an Early Warning System for Employee Burnout.” Canadian HR
Reporter 24, no. 8 (April): 23. Accessed September 16, 2022.
https://www.hrreporter.com/news/hr-news/hris-an-early-warning-system-for-employeeburnout-guest-commentary/313724.
Maurer, R. 2021. “With Virtual Interviews Here to Stay, Best Practices Are Needed.” SHRM.
Accessed August 29, 2022. https://www.shrm.org/resourcesandtools/hr-topics/talentacquisition/pages/virtual-video-interviews-best-practices-are-needed.aspx.
Meade, J.G. 2003. The Human Resources Software Handbook : Evaluating Technology
Solutions for Your Organization. San Francisco, CA: Jossey-Bass/Pfeiffer.
Newman, M., and C. Westrup. 2005. “Making ERPs Work: Accountants and the Introduction
of ERP Systems.” European Journal of Information Systems 14: 258–272.
https://doi.org/10.1057/palgrave.ejis.3000539.
Pentland, A. 2012. “The New Science of Building Great Teams.” Harvard Business Review:
62–70. Accessed September 16, 2022, https://hbr.org/2012/04/the-new-science-ofbuilding-great-teams.
Pollock, N., and J. Cornford. 2004. “ERP Systems and the University as a ‘Unique’
Organization.” Information Technology & People 17 (1): 31–52.
https://doi.org/10.1108/09593840410522161.
Robb, D. 2011. “Sizing Up Talent.” HR Magazine 56, no. 4 (April): 77–79.
Roberts, B. 2011. “Mobile Workforce Management?” HR Magazine 56, no. 3 (March): 67–30.
Accessed June 24, 2022. https://www.shrm.org/hr-today/news/hrmagazine/pages/0311tech.aspx.
Schwarz, L. 2016. "How Cloud ERP Compares to On-premise ERP." Oracle NetSuite.
Accessed June 27, 2022. https://www.netsuite.com/portal/resource/articles/on-premisecloud-erp.shtml.
Shah, N., Z. Irani, and A. Sharif. 2017. “Big Data in an HR Context: Exploring Organizational
Change Readiness, Employee Attitudes and Behaviors.” Journal of Business Research 70:
366–378. https://doi.org/10.1016/j.jbusres.2016.08.010.
Statistics Canada. 2022. “Cybersecurity Risks Impact Canadian Businesses.”
www.statcan.gc.ca. Accessed August 29, 2022.
https://www.statcan.gc.ca/o1/en/plus/514-cybersecurity-risks-impact-canadianbusinesses.
Stone, D. L., D. L. Deadrick, K. M. Lukaszewski, and R. Johnson. 2015. “The Influence of
Technology on the Future of Human Resource Management.” Human Resource
Management Review 25 (2): 216–231. https://doi.org/10.1016/j.hrmr.2015.01.002.
Stricker, N., F. Echsler Minguillon, and G. Lanza. 2017. “Selecting Key Performance
Indicators for Production with a Linear Programming Approach.” International Journal of
Production Research 55 (19): 5537–5549.
https://doi.org/10.1080/00207543.2017.1287444.
Sumser, J. 2017. “Artificial Intelligence: Ethics, Liability, Ownership, and HR.” Workforce
Solutions Review (July–September).
Sysco. 2021. “Sysco Annual Reports.” Accessed August 29, 2022.
https://investors.sysco.com/annual-reports-and-sec-filings/annual-reports.
Ulrich, D., and W. Brockbank. 2005. The HR Value Proposition. Boston, MA: Harvard
Business School Press.
Wallask, S. 2017. “What Is Workforce Analytics? - Definition from WhatIs.com.”
SearchHRSoftware. Accessed August 28, 2022.
http://searchfinancialapplications.techtarget.com/definition/workforce-analytics.
Wang, L., Y. Zhou, and G. Zheng. 2022. “Linking Digital HRM Practices with HRM
Effectiveness: The Moderate Role of HRM Capability Maturity from the Adaptive
Structuration Perspective.” Sustainability 14 (2): 1003.
https://doi.org/10.3390/su14021003.
Wixom, B.H., and P.A. Todd. 2005. “A Theoretical Integration of User Satisfaction and
Technology Acceptance.” Information Systems Research 16 (1): 85–102.
https://doi.org/10.1287/isre.1050.0042.
Credits
[1] Image by Rawpixel.com/Shutterstock.com
[2] Image by Ground Picture/Shutterstock.com
[3] Image by one photo/Shutterstock.com
[4] © Courtesy of KIOSK Information Systems
[5] Image by Gorodenkoff/Shutterstock.com
[6] Image by Itzchaz/Shutterstock.com
[7] Video courtesy of MaRS Discovery District/YouTube
[8] Image by alexdndz/Shutterstock.com
[9] Image by Media_Photos/Shutterstock.com
[10] Video courtesy of Security Quotient/YouTube
Case Study: Quality and Cost Control at Wanda's Roti
When Wanda made roti for family gatherings, she never made enough. Her roti were not
exactly traditional, and the blend of ingredients and spices were so unique that everyone
loved them. Better yet, they were vegan and made with healthy ingredients. At one family
gathering, there was some discussion around Wanda’s roti, and Wanda was convinced that
she should make a business out of her now family-famous and soon to be world-famous
roti.
Rather than focus on the sales and distribution part of the business, Wanda was more
interested in the production side, so she approached several grocery stores to inquire
about their interest in selling her roti. It only took a few batches of samples for Wanda to
secure enough orders to begin producing roti in large enough numbers that she required a
dedicated space and staff.
Grocery stores marketed Wanda’s roti in two ways: the roti were sold at the hot table so
that customers could pick up warm roti at lunch or take it home for dinner, and the roti
were sold in the refrigerator section. In order to keep up with the demand, Wanda’s Roti had
to hire three shifts of workers. Wanda was certain the freshness was an important part of
what made her roti so good, so each shift involved preparing and cooking the ingredients
that went into the roti, making and cooking the roti wrap, and making the sauce that
brought it all together.
Over time, Wanda’s Roti evolved to the point where she had three kitchens with three shifts
of workers producing roti, and a corporate structure dedicated to ingredients sourcing,
finance and accounting, sales, and distribution to retailers. Wanda soon discovered there
were differences in the taste of the roti between kitchens, and even between shift crews,
and that the cost of ingredients also varied between crews. Wanda suspected that the
differences in both taste and cost were related to how long the longest serving member of
each kitchen shift had been with the company, but realized that the differences in the taste
of the roti were not really related to the differences in costs of producing roti between the
different shifts. She also noticed that some of the roti coming out of her kitchen were even
better than her original recipe. But that seemed to be an occasional blip in the production.
Wanda clearly needs to develop a better understanding of how shift workers are moving in
and out of the company, how they are performing their jobs, how much product is being
used to make roti by each shift, and any other information that can help her to keep quality
high and costs constant.
Case Study Question 8.1
Recommend what measures might help Wanda’s Roti to better understand the connection
between employees in each shift and the end product. What technology solution would
best help Wanda’s Roti to accomplish these objectives? What are the limitations of your
recommendations?
Chapter 9: Change Management
Figure 9.1 HR plays a critical role in the management of organizational change. [1]
Learning Outcomes
L.O. 9.1 Understand the importance of organizational change.
L.O. 9.2 Discuss the steps of a generic change project.
L.O. 9.3 Define and discuss the process of planned change.
L.O. 9.4 Understand how emergent change occurs.
L.O. 9.5 Understand the principles of a learning organization.
L.O. 9.6 Discuss how the principles of a learning organization are important to both
planned and emergent change.
Introduction
Can HR Lead Change?
Change often affects the entire organization, and almost always extends beyond the HR
function. Because it affects so many jobs and functions within the firm, it must include
participation from all employees who are influenced by the change process. This means
that change must be embedded deeply within the organization; if it is left to a single
department or individual to ensure that change occurs, it is bound to fail. This raises a
question around the role of HR and HR professionals in being agents of change. Both
the Human Resources Professionals Association (HRPA) in Canada and the Society for
Human Resource Management (SHRM) in the United States identify change management
as a requisite competency for the practice of HR, but what does HR do to initiate and
perpetuate change (Anderson 2015; Power 2011; Ulrich, Kryscynski, and Ulrich 2017, 37–
44)?
Understanding the role of the HR function or the HR professional in bringing about change
can be difficult. As you will notice throughout this chapter, successful change requires an
organizational culture that is open to constant learning, empowering employees to
question processes and experiment with new ways of thinking about how things get done.
Some researchers suspect that because the HR function is often viewed as a gatekeeping
function and a bureaucracy, it is infrequently a leader in promoting change. Another
impediment to acting as an agent for change is the fact that the HR function often plays a
supporting role in the organization. HR advises the business line, but rarely leads it. This
makes it difficult for the HR function to guide the organization through change (Anderson
2015; Power 2011; Ulrich, Kryscynski, and Ulrich 2017, 37–44 ).
In order to lead change, researchers suggest that HR professionals should possess a
specific set of competencies, including the following:
•
Strategic positioner: To be able to identify the activities, outcomes, and human
capital necessary for a business to succeed in its market.
•
Credible activist: To be a trustworthy partner to the business in helping to
understand how to solve business challenges.
•
Paradox navigator: To be able to understand and work from different points of view,
and different mental models. For example, to be able to bring together a top-down
view of competencies with a bottom-up view of knowledge, skills, abilities, and
other attributes (KSAOs) from job analysis.
•
Communicator: To be able to create an environment in which employees feel that
they can speak up about what is working and what needs to be improved, and
believe that they can have an impact on the organization.
•
Systems thinker: To be able to understand all aspects of the business, including
what customers value about the firm’s products or services. This will enable the HR
function to understand the interactions between all aspects of the firm so that as
one aspect changes, it is possible to envision how it will affect the system as a
whole (Anderson 2015; Power 2011; Ulrich, Kryscynski, and Ulrich 2017, 37–44).
9.1 Why Is Organizational Change Important?
Organizational change lies at the heart of the planning process. Organizations are dynamic
entities, constantly growing or contracting, and responding to internal and external
changes, some of which are within the control of the firm and others that are beyond its
control. The planning process anticipates organizational resource requirements in
response to organizational change using a variety of methods to forecast demand and
supply, and by connecting resource requirements with strategic and operating imperatives.
In order to effectively plan for and anticipate resource requirements, organizational
planners must have a strong understanding of organizational change. Chapter 1, Strategic
Management, introduced the roots of organizational planning and change in firm strategy.
In that chapter, we learned that strategy is a plan for establishing and maintaining a
competitive advantage in the market, and that the firm’s strategy provides the ideological
context within which organizational change takes place. Later chapters cover specific
change initiatives such as downsizing and restructuring, outsourcing, and mergers and
acquisitions. In this chapter, we span the gap between change at the level of
conceptualizing strategy and change at the level of specific initiatives by examining the
change process itself.
9.1.1 The Increasing Pace of Change
Innovations like the World Wide Web connect people and ideas across the boundaries of
time and space to enable change in ways that we are only beginning to grasp.
Crowdfunding, open-source software development, collaborative knowledge repositories
such as wikis and shared folders, mass customization, the shared economy, and other
communication-enabled advancements are changing the way businesses operate, and
now connect innovators with each other, their competitors, and customers to bring about
dramatically faster product developments. These changes are occurring amid
unprecedented levels of economic, political, and environmental uncertainty. In response
to these levels of change and uncertainty, organizations are moving toward systems that
enable faster response and adaptation to change. Flatter organizational structures, more
fluid job roles, greater employee autonomy, and team-based learning and decision making
are all efforts that can facilitate organizational knowledge acquisition and action based on
that learning.
Given the quickening pace of change and higher levels of uncertainty in today’s business
environment, firms that are able to manage change effectively are in a position to
outperform their slower, less change-capable competitors. The ability to manage change is
such an important organizational competency that some scholars believe it is the only
form of sustainable competitive advantage (Senge et al. 1994). Where other forms of
competitive advantage are susceptible to erosion through imitation, competition, or
changing consumer needs, firms that are able to adapt to their environment faster
maintain the ability to stay ahead of their competition. Accordingly, the most important
aspects of the job of a general manager include creating and directing strategy, and
managing change (Crossan et al. 2008).
9.1.2 Societal, Industrial, and Organizational Levels of Change
Organizational change occurs in response to societal, industrial, and firm-level
developments. At the societal level, economic and environmental issues can be strong
drivers of change. For example, after the 2008 recession, big-box stores such as Best Buy,
Walmart, Target, and Home Depot found that revenues were dropping in their large-format
stores. Several of the big-box stores have even begun to close their large stores, while
others have found either that the big-box format is restricting growth by not allowing the
format to serve smaller communities, or that the number of useful locations for these large
shopping outlets is becoming saturated. Furthermore, as people turn increasingly to online
shopping, the big-box format is becoming less relevant to shoppers. Big-box retailers are
now developing smaller versions of their stores in an attempt to adapt to these societal
changes.
At the industrial level, change typically follows an S-curve pattern in which sales of a new
product or service begin slowly as demand builds, followed by rapid growth as the market
for the product or service becomes mature, which leads to a tapering as consumer
demands develop and change (refer to Figure 9.2). The market for tablet computing devices
showed a slow start as the computer industry struggled to put together all the attributes of
size, weight, ergonomics, and technological capabilities that make a successful tablet
device. Apple found a winning design in the iPad, and the market took off, leading to
successful designs from competitors as well. As sales of the original iPad began to peak
and competition increased from other firms and devices such as smartphones with larger
screens, Apple brought out a smaller version at a different price point and with slightly
different features, and also began actively pursuing new markets for the tablet through
partnerships, like its alliance with IBM, to bring the iPad to the corporate market.
Figure 9.2 S-Curve Pattern
Firm-level developments occur largely as a result of demands from people with vested
interests. Shareholders, a particularly powerful group of people with vested interests,
might demand higher return on equity, new leadership might prefer a different strategic
direction, or internal resource constraints might lead to strategic change. Large firms like
GE, with multiple business units in different industries, might develop interesting
opportunities in multiple industries, but resource constraints such as managerial
capabilities or financial resources might lead to difficult decisions resulting in changes
around which projects are approved and which are downsized or shelved. Thus, decision
making based on internal, firm-level choices can be a strong source of organizational
change.
Given the multiple levels from which the need for organizational change can arise, it is no
surprise that firms experience an ongoing state of change. However, organizations do not
always change when they should, and even when they do change, they often experience
failure. Research suggests that up to 70 percent of organizational change efforts fail (Beer
and Nohria 2000). We will examine several models of organizational change that attempt to
model, understand, and mitigate these reasons for failure.
Models of Organizational Change
There are many models of organizational change. In this section we will examine the view of
organizations as open systems, and how this view impacts our understanding of
organizational change, through three basic models that form the basis of most models of
change. The first is a generic model of change that demonstrates the attributes common to
the many models of organizational change. The other two models are a model of planned
change and a model of emergent change.
9.1.3 Organizations as Open Systems
The term system refers to a set or arrangement of interrelated parts that interact to form a
whole (French and Bell 1999). Organizations are systems that comprise multiple
subsystems. A corporate functional group, such as the marketing department or the HR
department, can be considered a subsystem within the organization, as can the retail
division of the firm. These subsystems interact in complex ways. An open-system
perspective views the organization not from the point of view of an individual subsystem or
even groups of subsystems, but from the perspective of the organization as a whole, and its
interaction with its environment. Organizations are open systems because they interact
with their external environment, and because the internal subsystems interact with one
another (Burnes 1992). Organizations impact and are impacted by their external
environment and by the other subsystems working within them. The unpredictable and
interconnected nature of these open system dependencies are primary reasons that
organizational change can be so difficult, and so prone to failure.
Video 9.1 provides an overview of how organizations are open systems.
Video 9.1 Open Systems [2]
The Importance of Feedback
Open systems are input-throughput-output systems in that they take or receive inputs from
their environment, transform or convert those inputs, and then output the finished
products or services back to the environment. The factor that defines the structure of an
open system is its purpose; goals are used as indicators of whether the system is
functioning according to its purpose. The objective of an open system approach in
organizations is to structure and coordinate all the subsystems in a manner that ensures
that the firm is collectively pursuing its overall purpose (Burnes 1992). Therefore,
organizations must use feedback to determine whether or not they are achieving their
goals, and ultimately their strategic purpose.
Two basic forms of feedback are positive and negative feedback. Negative feedback is the
kind of information that indicates whether the system is achieving its goal. For example, the
thermometer in your room operates through negative feedback; the set temperature is its
goal, and it will operate the heater until the room temperature rises to the set temperature
before shutting off. If an organization determines that it needs to produce 1,000 pairs of
shoes every month, it will use negative feedback to determine if its daily production is on
track. Positive feedback, on the other hand, is the kind of information that a system uses to
determine if its purpose is suited for its environment. Positive feedback helps the
organization to determine if it should be producing 1,000 pairs of shoes a month, or what
styles of shoe it should be producing.
Organizational change implementations must take into account the potential effect of
changes on other subsystems and on the environment, and all models of organizational
change incorporate methods for utilizing negative and positive feedback into the design
and decision-making processes around change. However, benefiting from feedback
implies learning. Organizations must also have systems in place for learning in order to use
feedback, and different methods of learning are required to access negative and positive
feedback. Chris Argyris, a thought leader and noted researcher in the area of organizational
behaviour, referred to these methods of learning as single-loop and double-loop learning
(Argyris 1991, 99–109).
Single-Loop Learning
This type of learning is more related to problem solving in the form of identifying and
correcting errors. Single-loop learning is the type of learning around negative feedback, and
essentially seeks to learn how to achieve a set goal within the current set of governing
variables. Single-loop learning permits the organization or the individual to proceed
according to the status quo and can impede change implementations, especially when the
change requires new and different goals. HR Planning Notebook 9.1.1 discusses strategies
for overcoming the tendencies to reinforce single-loop learning.
Double-Loop Learning
As demonstrated in Figure 9.3, double-loop learning involves questioning the tacit
assumptions and attributions that people have around their decision making. In
organizational settings, this involves questioning the extent to which the strategy itself, and
the systems and structures that implement the strategy, support the underlying purpose of
the organization. When managers and employees examine the assumptions they have
used to arrive at a point of view, they are using double-loop learning, which enables them
to bypass the assumptions that may be locking them into a particular frame of mind and
preventing them from viewing the problem from a different perspective. Double-loop
learning is typified by encouraging participation in decision making and open expression of
conflicting views, using valid information, and widespread and open testing of evaluations.
The success of organizational change is therefore dependent on the methods of feedback
that organizations use, the validity of information that is gathered and shared, the
alignment of goals to the organization’s purpose and to the change implementation, and
the extent to which double-loop learning is fostered. Models of change must allow for
these factors to be considered, and differences between models of change often come
down to issues relating to the scale of the change or method in which these variables are
taken into account.
Figure 9.3 Single-Loop and Double-Loop LearningLong Text Description
HR Planning Notebook 9.1.1: Overcoming Single-Loop Learning
Single-loop learning can prevent the learner from developing an understanding of
underlying or root issues. It is typified by the following values:
1. The desire to remain in unilateral control. Predetermined goals and existing
methods of achieving those goals provide a sense of control. It is generally easier to
change the things that fall within our direct control than to change the things that do
not. For example, when asked to find ways to increase profits, managers often seek
to cut costs, which are known and within the control of managers, than to increase
revenues, which are less certain. One way to reduce the tendency to want to remain
in unilateral control includes allowing more democratic and inclusive methods of
decision making by pushing decision making to groups or giving individuals greater
autonomy in decision making.
2. A focus on maximizing winning and minimizing losing. Success is important, and
failure is difficult to accept. Organizations can increase their learning abilities by
encouraging experimentation, and allowing members to make mistakes. Individuals
and groups can move beyond defensive routines when they accept their mistakes,
and learn from mistakes from a more objective frame of mind.
3. Leaving potentially threatening or embarrassing facts out of the decisionmaking process. This tendency relates strongly to the previous point about the
importance of encouraging experimentation. When errors can be career limiting or
when they can negatively impact performance appraisals, it is only rational to want
to ignore them. However, by accepting errors or misfires as part of the risk-taking
process of creativity and innovation, learning can be enhanced.
Sources: Argyris (1991); Argyris, Putnam, and Smith (1985)
9.2 The Generic Model of Change
Many models recognize that the change process comprises several critical periods of
change as shown in Figure 9.4 (Hayes 2010). This figure represents an overview of the
change process, and incorporates the need for constant review of the change process as
well as the need to monitor and adapt to the internal and external changes that may be
affecting or caused by the change process.
Figure 9.4 Adaptation of Hayes’ Generic Model of Change (Hayes 2010)Long Text
Description
9.2.1 Recognizing the Need for Change and Starting the Process
This is one of the most difficult stages in the change process. Change requires not only that
a need to change is identified, but that the need is broadly felt among all participants
involved in the change process. Without full buy-in from all concerned parties, change
efforts are likely to fail. Once the need for change has been identified, the motivation for
that change must be spread throughout the firm. This motivation can come in the form of
incentives tied to organizational goals that are aligned to the desired outcomes of the
change, or in the form of a high-involvement/high-commitment strategy that aligns
employee values with organizational values (Beer and Nohria 2000). Successful change
initiatives tend to involve management and employees in the process of discovering the
problems and developing the solutions, as this inclusive style tends to promote a shared
understanding of the issues.
9.2.2 Diagnosing What Needs to Be Changed
Organizational change is complex, involving multiple groups with vested interests,
unpredictable outcomes, and unexpected consequences. Models of organizational change
tend to deal with the diagnosis of what needs to change by examining the leadership of the
change process, the overall purpose of the change, and the degree of planning involved in
the change process. Will leadership be a top-down style in which management determines
what needs to change and communicates goals down through the organization, or a
bottom-up approach in which all levels of employees share in determining what needs to
change and teams are charged with developing plans of action? Is the purpose of the
change to maximize the economic value of the firm by focusing on shareholder value—in
which case a top-down approach may be utilized—or is the purpose to develop the human
capability to implement the firm’s strategy, where a bottom-up approach may be a better
choice? Is the level of planning detailed, with firm goals and a timeline outlined from the
beginning, or is the planning loose, with a general direction and plenty of room for
experimentation? All these manifestations of change planning can be successful, but they
must be implemented in suitable situations. Change models help the strategic planner to
understand how to use these methods.
9.2.3 Planning and Preparing for Change
The type of change intervention that will be most successful will depend on the
organization culture, leadership, the timeline available for the change to be implemented,
and the purpose of the change. Organizations commonly take implementation approaches
that vary in the degree to which organizational members are involved in the change, and the
scope of the implementation, ranging from change based on the identification of a specific
problem to change based on changing the entire system, as shown in Figure 9.5.
Figure 9.5 Common Change Implementation StylesLong Text Description
For example, changes based on a specific identified problem such as the adoption of a
new human resource information system (HRIS) technology platform might have the
potential to affect a broad population within the organization; however, this type of change
initiative might be addressed using a top-down managerial approach. Senior managers
within HR might request an RFP from several prominent HRIS providers, make a decision
using feedback from business unit-level HR managers, and roll out training along with the
new system to the broader organization upon implementation. This example of a narrow
level of involvement for a broad implementation can be contrasted against change
implementations that seek to involve a much broader group of concerned parties. The
proliferation of high-involvement (often referred to as high-performance) work practices in
recent years suggests that firms are moving more toward greater levels of employee
involvement in organizational decision making and change implementation. An example of
a high-involvement work practice is a gainsharing compensation plan, where employees
are rewarded for reducing production costs and increasing organizational efficiencies.
Such a plan motivates employees to think creatively about developing and implementing
new ways to be more efficient.
More tightly structured and larger-scale changes will require many changes to
organizational systems and processes, while loosely structured changes will require deep
organizational learning around the firm’s vision and values. As organizations seek to involve
more constituents in the process of developing and implementing change, the structures
that guide the change process, including goals, levels of autonomy in decision making, and
feedback systems, tend to be broader and more loosely controlled. According to John
Kotter, good leaders tend to focus on setting direction rather than plan; align people to a
common purpose rather than organize them; and motivate people to move in a particular
direction rather than problem solve around the systems and processes used to push
people in a particular direction (Kotter 1990, 112–117). This view of leadership suggests
that any change process should begin with the establishment of a clear understanding of
the firm’s overall vision and direction. When anchored around a common understanding of
the firm’s vision, highly structured change implementations can be constructed such that
all the goals, processes, and practices that are intended to move the organization in the
direction of the change are internally aligned.
A common understanding of the firm’s vision is even more important to loosely structured
change initiatives, where leadership tends to express very loose goals around which
organizational processes and practices emerge. For example, Bob Galvin, CEO of Motorola,
in 1983 helped to transform the company by challenging his executives to “renew the
organization” (Tetenbaum 1998, 21–32). Such a challenge would lack impact or even
meaning without a strong understanding of the firm’s broader purpose.
9.2.4 Implementing the Change
Implementing change demands particular skills from both the change leaders and those
involved in the change. Successful change leaders rely on their ability to make use of the
complex social networks that connect people within organizations, and on their their
political skills, which can be defined as the ability to persuade, manipulate, and negotiate
to achieve a particular outcome (Krackhardt and Hanson 1993, 104–111; Ferris et al. 2007,
290–320). Social networks in organizations are rarely reflected by the formal reporting
structures. These networks are instead based on the extent to which people routinely
communicate with one another and whom people turn to for information relating to getting
their work done. Social networks in organizations can be complex and very difficult to
observe, and employees who become influential members of a social network are often
those with high levels of firm-specific human capital in that they are instrumental in getting
work done or helping others to get work done better or faster. An influential role in a social
network can therefore be a very important tool in helping to achieve buy-in from others
around the importance of the change initiative and in bringing about shared mental models
of the firm’s vision and purpose (Figure 9.6).
Figure 9.6 Employees often have very good ideas about how to improve processes. [3]
Political skills are also important in achieving widespread buy-in for a change
initiative. Persuading others is rarely done using a single, convincing argument. Rather,
persuasion is a process that involves listening to others, learning about the positions and
perspectives of others, and incorporating those views into an argument (refer to HR
Planning Notebook 9.2.1 for tips on how to increase persuasiveness). Persuasive skills are
quite similar to the dimensions of political skills, which include social astuteness,
interpersonal influence, networking ability, and apparent sincerity (Krackhardt and Hanson
1993, 104–111; Ferris et al. 2007, 290–320). Leaders involved in a change process must to
be able to exercise political and persuasive skills, and to draw from social networks in
order to ensure the success of the change implementation.
HR Planning Notebook 9.2.1: The Science of Persuasion
The ability to persuade others is an important skill not only for managing change but also
as a general leadership skill. A good argument requires support and understanding from
others, and those who are better able to supplement a strong argument with persuasive
skills are more likely to find that support. One model of persuasion suggests that there are
four steps to persuading others:
1. Establishing credibility with the audience by demonstrating expertise and gaining
trust. People are less likely to follow those whom they do not trust. An important
first step is to help others to see how your position is informed through expertise
and that you are a trustworthy source.
2. Framing your position in a way that will appeal to the audience by emphasizing the
advantages. The way in which people respond to ideas is partly dependent on the
way the information is presented, or framed. This is done in politics, of course,
where politicians choose words carefully to elicit an emotional response that
frames an issue in a preferred manner. For example, referring to the U.S. Patient
Protection and Affordable Care Act (otherwise known as Obamacare) as socialized
medicine or as health insurance reform frames the act in very different ways that
produce potentially different responses. Strong persuasive skills involve framing an
argument in a manner that the audience will be able to relate to and find appealing.
3. Providing evidence through the use of supporting data and appealing stories,
metaphors, or analogies to help the audience visualize your position. Metaphor is
an excellent tool for communicating something new or different by relating it to
something with which people are already familiar. For example, children who are not
equipped with language to describe sensations like a foot falling asleep will
communicate the odd feeling using a metaphor such as “a hundred bees are
buzzing on my foot.” People skilled in persuasion help others to understand their
position by creating shared mental models to describe unique, novel, or abstract
ideas.
4. Connecting emotionally by matching the emotional state of the audience. To do
this, good persuaders require emotional intelligence. Emotional intelligence
involves an ability to be aware of and capitalize on one’s own emotions and the
emotions of others. Effective persuasion requires an emotional appeal in addition to
a rational argument.
Source: Conger (1998, 84–95)
9.2.5 Sustaining the Change
Implementing organizational change also requires a firm-wide approach to enable the
change process, regardless of its scope. Change initiatives that are of a narrow, more
focused approach may make use of a new business process, with a commensurate level of
training around the new process, whereas large-scale change initiatives may involve many
unknowns that cannot be completely anticipated. Such changes require organizational
learning and experimentation in order to plot a successful change path. We will cover two
prototypical models of organizational change in the next section that address how
organizational change can be implemented.
Once change has been implemented, steps must be taken to ensure that the organization
does not slip back into its pre-change mode. While new methods or processes can be put
into place, these methods will likely not endure if they do not fit with the firm’s culture, or if
they are not incorporated into existing mental models of how things work within the
organization. For example, despite the potential benefits of merging to both Daimler and
Chrysler in terms of expected market development and resource sharing, and despite all
the systems put in place to merge these two firms, the inattention to integrating the
cultures of these two very different firms ultimately led to one of the most notable merger
failures in the auto industry (Appelbaum, Roberts, and Shapiro 2013, 33–58). Sustaining
change usually involves a set of measures to provide feedback to the organization that
indicate when goals that relate to successful change are being met, and systems that can
lead to the development of adaptations when those goals are not being met.
9.3 The Planned Model of Change
It has been argued that Kurt Lewin’s three-step model of planned organization change is
the model around which most subsequent change models were conceived (Burnes 2004,
977–1002). Kurt Lewin (1890–1947) was a behavioural psychologist who focused much of
his work on situational and group influences on individual behaviour. In the early 1940s,
Lewin developed the Planned approach to change. The Planned approach to change
comprises four elements in total: field theory, group dynamics, action research, and the
three-step model of change. Together these four elements form an interrelated approach to
understanding and developing solutions to change problems. We will briefly touch upon
each of these elements while focusing more on the three-step model.
9.3.1 Field Theory
Lewin developed field theory as an approach to understanding and changing individual or
group perceptions and behaviours by seeking to understand the interdependent forces that
act on individuals or groups and that motivate them toward certain courses of action and
restrain them from others. According to Lewin, the totality of all the psychological forces
(i.e., their needs, goals, and intentions) that maintain an individual’s or group’s set of
behaviours in a given situation, such as home life or work life, can be described in what
Lewin called a life-space. The forces acting on a particular life-space are always in flux,
always changing, but they form a state of quasi-equilibrium, which is referred to as the
status quo. The status quo can be changed by altering the forces that make up the life-
space. Behavioural change is therefore a matter of understanding the forces that act on an
individual’s or group’s life-space, and reinforcing those forces that act to move the
individual or group toward the desired behaviour, and reducing the strength of the forces
that act to prevent the individual or group from moving toward the desired behaviour. The
analysis of these forces acting on individuals or groups is also called force-field analysis.
Force-Field Analysis
The purpose of force-field analysis is to analyze a condition and to plan corrective
actions. Figure 9.7 presents a force field depicting the driving and restraining forces in a
change effort to increase team effectiveness and communication within one year. The
analysis begins with a statement of the current state or condition, and a statement of the
desired future state or condition. The analysis then attempts to plot the forces that are
supporting or driving toward the future state as well as the forces that are restraining the
future state from being put into action.
Figure 9.7 Force-Field Analysis (Based on French and Bell 1999)Long Text Description
A force-field analysis is an important first step in a change plan (refer to HR Planning
Notebook 9.3.1 for the steps in conducting a force-field analysis). It helps organizations to
identify issues by requiring change planners to first identify a future desired state rather
than focus solely on existing problems. It also helps planners to identify suitable courses of
action to initiate a change implementation.
HR Planning Notebook 9.3.1: Force-Field Analysis
Force-field analysis can be used as a problem-solving tool as well as a change
management tool. Some of the benefits of a force-field analysis include the development
of a strong understanding of the current situation, and a clarification around how it differs
from an ideal future state or situation. Force-field analysis can be used to decide whether a
change is appropriate and, if so, what actions should be taken to move toward the new
direction. French and Bell (1999) break the force-field analysis down to the following steps:
1. Describe the current state (i.e., the status quo), and why it must be changed.
Ultimately, this will lead to a statement of the current condition, such as “team
coherence is at an all-time low.”
2. Describe the desired future state. The future condition should ultimately be
described in a sentence or a few sentences, such as “increase team effectiveness
and communication within one year.”
3. Identify the forces that are supporting or driving toward increasing team coherence
as well as the forces that are restraining or preventing increased team coherence.
Techniques that access a wide variety of viewpoints from organizational members,
such as surveys, brainstorming sessions, and nominal group technique, might be
useful to perform this step.
4. Examine the valence of each of these forces. Which forces are the strongest and
which are the weakest? Which of these forces can be controlled or are susceptible
to behavioural intervention?
5. Develop strategies to reduce the strength of the restraining forces and strategies to
amplify the driving forces.
6. Implement the strategies developed in step 5. As restraining forces are reduced in
strength and number and driving forces are amplified and increased in number,
behaviours should begin to shift toward the desired state.
7. Develop strategies to stabilize the driving and restraining forces into a new state of
quasi-equilibrium. How do we make this the new status quo?
After using a force-field analysis, organizational planners can begin the process of moving
toward the future state through a series of trial-and-error attempts to implement the
strategies developed in step 5 to reduce restraining forces and amplify the driving forces.
After moving to the new state, planners must develop strategies to stabilize the driving and
restraining forces into a new state of quasi-equilibrium; to turn the change into the new
status quo.
Source: French and Bell (1999)
9.3.2 Group Dynamics
A group can be any aggregation of two or more people. Groups can be assembled for a
specific purpose or task, or groups can form spontaneously as a result of people
assembling around a common cause (e.g., an audience at a concert, or a social network at
work, or witnesses at the scene of a car accident). While not all groups have formal rules or
codes of conduct, they develop norms over time that govern or constrain the behaviours of
the individuals who comprise the group. Thus, a group is more than merely the sum of the
individuals within it; a group establishes normative behaviours that alter the actions of
group members (Figure 9.8).
Figure 9.8 A group establishes normative behaviours that may influence the actions of its
members. [4]
Lewin believed that organizational change could be achieved only by changing behaviours
at the group level. Accordingly, efforts focused on changing individual behaviours alone
would be insufficient to bring about effective and sustainable change. In other words,
individual behaviour in organizational settings is to some extent a function of the group
setting. Change implementations must be viewed from the perspective of the group, which
involves focusing on the values, norms, and roles within the group.
9.3.3 Action Research
While an important stage in the change process is understanding that the status quo is not
sustainable, the decisions around what needs to change are filled with uncertainty and
risk. Lewin believed that change is most likely to succeed when concerned parties are
involved in both making and implementing decisions. This implies a level of interaction
between research and practice whereby the practitioners are also the researchers. Action
research is theory-based, but rather than seeking findings that are universal or
generalizable across all situations, it is embedded in the specific context of the
practitioners, and is intended to help identify and solve practical problems in a methodical,
evidence-based manner. Figure 9.9 shows the five stages of the cyclical process of action
research. As practitioners move from diagnosis to planning, taking action, evaluating the
outcomes of those actions, learning based on the outcomes, and back to diagnosing, this
cyclical process is intended to spiral deeper toward greater insight into the problem and its
ultimate set of solutions as new learning occurs through each cycle (Dickens and Watkins
1999, 127–140). Action research is used in many fields, including management, education,
sociology, psychology, anthropology, and politics, to name a few (Clausen 2014, 1–2).
Figure 9.9 Action Research Steps (Adapted from Susman 1983, 95–113)Long Text
Description
One of the main benefits of action research is that each of the successive steps taken to
implement change is based on input from concerned parties and uses information from
prior steps (Beaulieu 2013, 29–39). When each step of an implementation informs the
following steps using action research, it is possible to understand how a change
implementation can be methodical, but allow for improvisation and unpredictability in the
process. The end result of such a process of inquiry may be quite different from the original
problem definition, as insights from each cycle of action research have the potential to
lead to previously unanticipated courses of action. HR Planning Today 9.3.1 provides an
example of how an organization uses mental models to adapt to and navigate through a
rapidly changing market.
HR Planning Today 9.3.1: Action Research at T&T Supermarket
T&T Supermarket (T&T) is Canada's largest Asian foods-focused grocery retailer, with 30
stores located throughout British Columbia, Alberta, Quebec, and Ontario. T&T first opened
its doors in 1993 with two locations in British Columbia and the value proposition to
"celebrate the Orient." Its purpose is to celebrate Asian foods "by building bridges across
cultures through food," and it now provides in-store prepared foods so that customers can
shop for groceries and also bring home a ready-made meal. T&T now even sells Asian skin
care and beauty brands. In 2009, T&T became part of Loblaw Companies Limited.
As part of its people-first culture, T&T has developed a value proposition centred around
caring for both customers and employees. T&T's principles are captured by 10 foundational
"iron rules" that every employee should understand and use to guide their behaviour at
work. To facilitate a consistent understanding of each of the 10 iron rules, T&T provides a
few behavioural examples. For example, one of the iron rules is to "be accountable," and
the underlying behavioural examples include "be an open-minded problem solver,” “selfreflect before pointing fingers," and "create room and acceptance for employee mistakes."
The examples that are provided help employees to contextualize the types of actions and
behaviours that are implied by the iron rule to "be accountable," so that each iron rule has
real meaning that is consistently shared among all employees.
In order to ensure that the iron rules are widely and consistently understood, T&T collects
information from the following sources:
•
Employee engagement surveys. Employees are surveyed at least annually to
assess the degree to which they perceive themselves to be connected to
organizational goals and values.
•
Culture ambassadors. T&T appoints employees who demonstrate the firm's
culture through their actions and interactions as ambassadors of the firm's values
and beliefs.
•
Weekly huddles. Every week, T&T holds a corporate huddle where employees share
stories that demonstrate examples of one or more of the iron rules in action in the
workplace. These stories can be of perfect moments of an iron rule being
demonstrated, or they can be of a problem, or where an iron rule was missed. These
stories help to reinforce what the iron rules mean at T&T, and regularly test their
relevance to implementing T&T's strategy.
•
Performance evaluations. Every performance evaluation at T&T includes a section
on the behaviours that employees demonstrate to be consistent with the culture.
•
Staff forums. These are employee focus groups for providing feedback around how
the iron rules are being demonstrated across T&T and how the people-oriented
value proposition is being implemented.
The five sources of information span the organization and act as centres for both learning
how the iron rules are working to help T&T stay focused on its culture and values, and to
help ensure that a consistent understanding of the iron rules is maintained throughout the
organization. Although this information-gathering process acts as the diagnosing stage of a
broad action research plan to keep the iron rules aligned with T&T values and purpose, the
process of gathering the information from these five sources was arrived at using action
research as well. When asking itself the question, "How do we know that we understand
and act in accordance with our iron rules?", T&T goes through a cyclical process of asking
whether it has captured a broad enough representation of the organization, planning for
ways to gather information from more organizational sources, acting to gather that
information, observing whether the increased source is providing new knowledge, and
reflecting on how the information-gathering process can be further improved.
Action research at its roots requires group participation, and commitment among those
participants to improvement. Through the process of action research, the participants
simultaneously contribute to the knowledge-gathering process and learn from it. As shown
in Figure 9.10, the action research process at T&T demonstrates how organizations can use
action research to fulfil both of these objectives at the same time.
Figure 9.10 Participatory Action Research at T&T Supermarket (Adapted from Susman
1983, 95–113)
Source: Interview with Tina Lee, Chief Executive Officer, T&T Supermarket, July 2022; T&T
(n.d.)
9.3.4 Three-Step Model
This model is the main component of the Planned model of change, and is the primary
change framework for this chapter. The three steps of unfreezing, moving, and refreezing
have become the foundation of many subsequent models of organizational change.
Lewin’s choice of wording has led to criticisms of this model, as some have argued that the
static notions of unfreezing and refreezing do not adequately address the need for models
of change to incorporate the constant ebb and flow of change within organizations (Burnes
2004, 977–1002). However, when the three-step model is embedded in the four
interconnected elements of the Planned model of change, it becomes clear that the model
is far from static in its consideration of organizational change. To better understand this,
refer to Video 9.2 below. Then we will examine the three steps of unfreezing, moving, and
refreezing in closer detail.
Video 9.2 Three-Step Model [5]
Step 1: Unfreezing
As was discussed in the section on field theory and the force-field analysis, Lewin
proposed that organizational conditions exist in a state of quasi-equilibrium that is loosely
maintained by opposing forces acting to drive and restrain conditions. Because individual
behaviours are partly dependent on group forces such as norms, values, and roles, the
equilibrium brought about by the various forces and by the norms, values, and roles within
the group must be destabilized so that new learning, new norms, and new conditions can
take root.
A great deal of research has been done on the tendency to resist change, and the
unfreezing stage represents the part of a change process where resistance to change is
broken down. The open-system view of organizations presupposes that organizations, like
organisms, tend toward homeostasis in that they try to maintain their equilibrium in
changing environments and are naturally “change resistors” (Flood and Carson 1993). In
addition to systemic sources of resistance to change, individuals may resist change
actively by finding fault in or ridiculing the change plan, or passively by verbally agreeing to
a course of action but failing to actually act, by refusing to share information, or by not
following through with plans (Hultman 1995, 15–28). Destabilizing the status quo requires
overcoming resistance to change. HR Planning Today 9.3.2 describes how IBM avoided
imminent bankruptcy by unfreezing and changing its long-standing culture and
organizational activities. Edgar Schein is a social psychologist who expanded on Lewin’s
three-step model by suggesting that the process of unfreezing requires three conditions to
unfreeze current behaviours (Schein 1999):
•
Disconfirmation of the validity of the status quo. Essentially, this means that
those with a vested interest must be convinced that the current modes of behaviour
and way of doing things are no longer successful paths to achieving goals. This is
done by:
•
Inducing survival anxiety. Individuals and groups must develop a sense of survival
anxiety, or pressure to change, in order to overcome resistance and to move away
from current behaviours and toward new learning and new behaviours. However,
new learning and new behaviours carry with them learning anxiety, or the fear of
failure. In the context of a force-field analysis, survival anxiety can be considered a
driving force, and learning anxiety a restraining force. Therefore, moving away from
the status quo would require both increasing the driving force and reducing the
restraining force (learning anxiety). Schein suggests that decreasing learning anxiety
can be facilitated by:
•
Creating psychological safety. Psychological safety is the belief that an individual
can take certain risks and openly discuss workplace issues without fear of reprisal
or threat to mental well-being. Schein recommends that psychological safety can
be increased through interventions such as providing a strong organizational vision,
consistent systems and structures, training, role models, and support groups, as
well as by involving the learner. Thus, unfreezing requires that those with a vested
interest in the situation develop the understanding that the current way of doing
things is no longer acceptable, that continuing along the current path will lead to
meaningful negative consequences, and that taking a risk on a new path or
expressing new ways of doing things will not be judged negatively. Without satisfying
these three conditions, change efforts are likely to be hampered by resistance.
HR Planning Today 9.3.2: Unfreezing at IBM
For decades, IBM was considered a model corporate enterprise. IBM hired the smartest
employees and gave them an excellent working environment and job security; customers
knew that they could trust IBM’s information technology and management solutions. It was
a safe bet to buy IBM products and services. But by the mid-1990s, IBM was quickly running
out of cash, and heading toward disaster. In the mid-1970s, IBM focused its resources on
large mainframe computing, when the market was headed to miniaturized, stand-alone
workstations. As the market for mainframe computers quickly dwindled through the 1980s
and early 1990s, IBM did not have the resources to develop a competitive advantage in the
personal computing market. As well, the corporate culture at IBM that had been developing
since the early 1960s was very strong: IBM was focused on developing and implementing
integrated, large-scale solutions, whereas the information technology market had been cut
into segments where smaller, faster innovators were capturing market share. Having been
accustomed to market domination and success, the culture at IBM was highly resistant to
change, even in the face of broad media criticism.
Figure 9.11 IBM Canada Headquarters [6]
Senior management at IBM looked outside the firm for the first time in its history to hire a
new CEO. It was looking for a change agent who could transform the company. IBM had
become frozen in its current condition after years of market dominance; as its market
began to disappear, the company lacked the ability to “unfreeze” – to the point of its near
demise. When Louis Gerstner took over as CEO in 1993, he set about unfreezing this
behemoth of a company. By that time, employees had a strong sense that the status quo
was no longer viable. Revenues from the mainframe computer market had fallen by more
than 50 percent over the course of a couple of years, and the media coverage of IBM’s woes
had helped push several banks to reconsider their lending situation with IBM. The company
that had a reputation for “no layoffs” had seen the departure of roughly 120,000 employees
in just three years.
To instill psychological safety, Gerstner called upon IBM’s original strategy of offering
customers a complete, unified solution, but using different activities. He confronted the
criticism of many media outlets that IBM had become too big to change this late in the
game by suggesting that IBM eliminate its bureaucratic ways, and he dealt with the
employees honestly by admitting that the days of no layoffs at IBM were gone; IBM would
have to change its size and its core activities. After laying out the overall customer strategy
and focus, Gerstner left much of the implementation to managers’ understanding of what
the market needed. Rather than extensive planning, he wanted quick action, even if it led to
occasional mistakes. Finally, Gerstner pointed out that while he was looking for small wins
in the short term, this effort was going to take years.
IBM sold its last computer in 2005. Today, it is one of the largest consulting organizations in
the world that connects hardware, software, and decision making to provide data analysis
and information-based solutions to its customers. Many factors came together to bring
about the unfreezing of IBM’s culture and strategy back in the early 1990s; the board of
directors, employees, and U.S. media and society helped unseat the status quo, while
Gerstner did much to bring about the sense of psychological safety that allowed the firm to
progress into the moving stage of change. Without these factors coming together, IBM
would not be the successful firm that it is today.
Sources: Gerstner Jr. (2009); IBM (2009)
Step 2: Moving
The unfreezing and moving stages of the three-step model parallel the action planning
process. The unfreezing stage involves identifying the problems and action planning
around methods of enhancing the driving forces and reducing the restraining forces
identified in a force-field analysis, and the moving stage of the three-step model focuses on
taking action and evaluating the outcomes of those actions. Lewin mentions that the
complexity of the interplay between the forces involved in change renders outcomes
impossible to predict. Thus, the moving stage is the process of trial-and-error that can
cycle back and forth between unfreezing and moving as change agents monitor the
strength and effects of the moving process on driving and restraining forces. Successful
movement requires experimentation, where mistakes can occur. Organizations that
encourage experimentation must also develop a culture in which mistakes are accepted as
part of the learning process. Organizational cultures that do not accept mistakes or that
punish employees for mistakes will generally lead to defensive routines and single-loop
learning (Argyris 1991, 99–109). When double-loop learning is employed during this step,
change agents not only strive to achieve movement in the direction of the originally
proposed change, but also seek to determine whether the original set direction or outcome
is still the most important or relevant goal. This iterative process of action and research
continues until a set of behaviours, values, and attitudes that are consistent with the
overall change effort is achieved.
Step 3: Refreezing
The purpose of this stage is to establish new norms and modes of behaviour that are likely
to reinforce the change that has taken place. The term refreezing may suggest that the
organization is placed in a new form of stasis, but recall that the quasi-equilibrium that
Lewin refers to in the unfreezing stage refers to a balance of forces that are supported by a
set of norms and behaviours. Unless there are new group norms and routines to support
individual behaviours, Lewin suggests that changes to individual behaviour will regress to
their pre-changed state. In this phase, organizational structures, processes, and systems
such as new compensation and benefits plans, revised selection criteria, training
initiatives, job designs, or team or reporting structures are put into place to reinforce new
cultural norms. The lack of attention to refreezing may be exemplified by the nature of
popular organizational management techniques such as outsourcing or total quality
management (TQM), which rapidly become management fads and then quickly lose some
of their popularity as the intended benefits fail to emerge for many firms. The
implementation of these techniques themselves may be clearly codified and followed, but
the development of organizational structures and practices to root them into the newly
changed system may not be given sufficient managerial attention to allow them to flourish
within the organization.
9.3.5 Development of the Planned Change Approach
Planned change has endured since Lewin’s approach was introduced in the 1940s, and has
been further developed in many ways by many researchers and practitioners. One of the
more popular approaches is John Kotter’s eight-step model of change (Kotter 2007, 96–
103). You may not be surprised to learn that this approach bears many similarities to
Lewin’s model, which suggests that the overall process has endured the test of time.
Kotter’s eight steps, and their relation to Lewin’s Planned approach, are shown in Figure
9.12. The first three stages of this model, which are (1) establishing a sense of urgency,
(2) forming a guiding coalition, and (3) creating a vision, are clearly activities that mirror
Lewin’s unfreezing stage. The next four stages move the change process and even include
the reiterative nature of cycling between unfreezing and moving by (4) communicating the
vision, (5) empowering others to act on the vision, (6) planning for and creating short-term
wins, and (7) consolidating improvements and producing more change. Finally,
(8) institutionalizing new approaches clearly reflects the refreezing process. Common to all
models of planned change is the assumption that change is a process that can be
segmented into discrete and necessary steps that organizations all pass through en route
to successful change. Kotter warns that the change process usually takes more time than
managers suspect, and that skipping steps in a planned change effort in the hope of saving
time or increasing efficiency is unlikely to yield positive results (Kotter 2007, 96–103).
Figure 9.12 Relationship between Lewin's Three-Step Model and Kotter's Eight-Step Model
of Change (Kotter 2007, 96–103)Long Text Description
9.4 Emergent Change
All planned approaches to change assume that change is initiated at the top of the
organization based on identifiable and definable issues, has discrete steps, and includes a
beginning and end point. This planned, linear approach might be used in a situation such
as the implementation of a financial incentive plan that is designed to better align
employee goals with organizational goals. However, if the change plan recognizes that
change must take place but has difficulty identifying the exact courses of action to take,
and has goals that are broadly defined—for example, a goal to “improve customer
service”—the Planned approach can be overly restrictive. Furthermore, as Lewin’s notion
of quasi-equilibrium based on a balancing of opposing forces suggests, change is often
complex, dynamic, and unpredictable. Organizations are complex systems, and
relationships in such systems tend to be nonlinear and highly interconnected, which leads
to unintended consequences (Tetenbaum 1998). These characteristics evoke a process
that is much more chaotic than the carefully controlled nature of the Planned approach to
change. Change researchers have recently begun to embrace the chaotic nature of change
by applying chaos theory to models of organizational change.
9.4.1 Chaos Theory and Emergent Change
Figure 9.13 Randomly Oscillating Magnetic Pendulum [7]
The development of organizational management over the past century has been focused
on establishing order from chaos through systemization and control. Chaos
theory recognizes that attempts to do this assume that the future can be both known and,
to some extent, controlled. However, scientists have learned that even models that
perfectly match dynamic systems cannot predict the outcome of that system at a given
point in time. For example, you may be familiar with a children’s toy called a randomly
oscillating magnetic pendulum, which is a pendulum with magnets at the bottom of the
pendulum as well as on the base of the toy (refer to (Figure 9.13). When the pendulum is
put into motion, the two magnets interact to make the pendulum move in chaotic patterns.
While it is possible to predict things like the average distance the pendulum will be from
the base at a given moment, or the average length of time the pendulum will remain in
motion, it is impossible to predict the exact position of the pendulum at any given moment
during its travels. The properties of the system interact with one another in unpredictable
ways to produce outcomes that simply cannot be predicted with accuracy (Senge 2000,
59–82).
This is the essence of chaos theory, and it flies in the face of the popular Newtonian
worldview of business as a controllable, predictable machine. We tend to think of chaos as
a complete lack of order; however, from a scientific perspective, chaos refers to a form of
disorder in which behavioural patterns emerge in unpredictable and yet similar ways
(Tetenbaum 1998). While the perfect model of a dynamic system may not be able to
perfectly predict the state of that system at a given point in time, the model will produce
outcomes that are consistent with the behaviour of that system. This can be understood
through the myriad examples of the outcomes of chaos theory in our daily lives; for
example, the way all snowflakes are formed by the same process that leads to each having
six sides, and yet each snowflake is unique (Tetenbaum 1998). Chaos theory has been
used in the study of business to demonstrate how small changes in the function of supply
chain models can lead to unpredictable outcomes. In short, chaotic systems produce
recognizable patterns, with unpredictable outcomes (Levy 1994, 167–178).
In the context of managing change, chaos theory provides a frame for understanding how a
broadly defined goal such as “to improve customer service” can provide the basis on which
successful change can be patterned. Dee Hock, former CEO of Visa, coined the
term chaordic organization (a combination of the words chaos and order) to describe a
management style whereby firms focus less on structure and control, and more on a
guiding purpose. A clearly understood and shared guiding purpose provides the order
necessary for organizations to spontaneously develop their own structure and system
(Hock 2000, 6–8). Tetenbaum (1998) points out that chaos is actually governed by
underlying rules, and in Hock’s chaordic organization, those rules are the firm’s purpose
and the principles that guide employees toward behaviours that are harmonious with that
purpose. Examples of chaordic behaviour in nature are the tendencies for birds to flock
together or fish to swim in tightly coordinated schools (Tetenbaum 1998). As shown in
Figure 9.14, flocks of birds dart through the air with a degree of coordination that suggests
an extremely high level of communication and integration. How is a signal to turn in a
particular direction transmitted instantly through a flock of hundreds of birds? Craig
Reynolds, a software engineer, developed a computer simulation model of the flocking
behaviour of birds using three simple rules:
1. Separation: avoid crowding other members of the flock
2. Alignment: steer towards the average direction of other members of the flock
3. Cohesion: move toward the average position of members of the flock
These three simple rules created a model of flocking behaviour that replicates the flocking
of birds so well that it was adopted by Hollywood to create bird and bat flocking animations
in the Batman Returns movie (Reynolds n.d.). Scientists continue to study flocking
behaviours, and their results show that flocks move in small incremental changes in speed
in response to the movements of their nearest neighbours. This BBC article details
scientists' examinations of starling flocks.
Figure 9.14 Flocks of birds are able to coordinate behaviour and move in unison. [8]
Using the principles of chaordic behaviour to manage change therefore suggests that
emergent change is a bottom-up process in that it originates from and is enacted by all
members at all levels of the organization, and that it is guided by simple principles that are
widely held throughout the organization. For example, Apple’s success can be attributed in
part to the fact that all the company’s products demonstrate a commitment to its guiding
principles of ease of use, integration of products, and innovative industrial design. One can
imagine that when developing innovations at Apple, hardware engineers, software
engineers, and designers all have these guiding principles at the forefront of their thinking,
which may explain why Apple’s new products have been consistently successful.
In Video 9.3, Tina Lee, CEO of T&T Supermarket, discusses purpose and values as guiding
principles at T&T Supermarket.
Video 9.3 Guiding Principles at T&T Supermarket [9]
For another example of how organizational values can be used to guide organizational
change, refer to HR Planning Today 9.4.1.
HR Planning Today 9.4.1: Emergent Change through Vision and Values at Kindred
Credit Union
An important element of successful emergent change is a shared understanding of the
simple rules that drive the system. Credit unions are member-owned co-operatives in
which members can draw low-interest loans from pooled deposits. Kindred Credit Union,
centred in Kitchener, Ontario, is such a co-operative, where members agree to embrace a
faith-based set of convictions. By sharing similar religious beliefs, members develop rich
mental models of the guiding principles of the Kindred Credit Union, which are integrity,
compassion, and responsible stewardship. These institutional values are directly
associated with personally held religious values, which imbue the credit union’s values
with deep meaning and an understanding of the kinds of actions and behaviours that
reflect those values. Furthermore, a main purpose of this credit union is to invest in the
local community, and to return profits to the members. As such, the institution exists to
serve the needs of its members.
When an organization is able to clarify and consistently message its members around its
central principles, and when members identify strongly with the purpose of the
organization, then member activities are likely to complement the needs of the
organization. In a credit union, this means that members are less likely to abuse the creditgranting aspects of the institution, thereby lowering costs of defaults for all members. The
kinds of loans that are granted and the types of services that are offered to members are
not determined by what competitors are offering or whether the organization can achieve
economies of scale or scope through these activities, but by whether the activities serve
the needs of the members. When it comes to organizational change, a strongly shared
understanding of the central principles and purpose of the organization can lead to
thinking, actions, and innovations that are in step with the needs of the organization.
Rather than stating a specific need or even a specific goal, these institutions develop
necessary capabilities spontaneously and as the need arises.
Source: Kindred Credit Union (n.d.)
The idea of a chaordic organization also suggests that firms must create systems and
structures that communicate the guiding principles in a consistent and unambiguous
manner, that give employees the skills and autonomy to be adaptive in their environment,
that leverage diversity to broaden the creative scope of the firm, that make use of teams so
that employees can interact and develop ideas, and that encourage information sharing
among employees (Tetenbaum 1998). Change in the context of a chaordic organization is
an emergent phenomenon rather than planned. Change occurs as a form of adaptation
and as a result of learning, and so the most important attributes an organization can
develop in order to promote emergent change are those of a learning organization. HR
Planning Today 9.4.2 discusses how the process of emergence is changing an entire
industry.
HR Planning Today 9.4.2: Emergence at the Industry Level: Specialty Coffee
Coffee is one of the most traded agricultural commodities in the world. It is also one of the
most valuable commodities exported by developing countries. As a commodity-based
industry, the market price for coffee is set according to its global availability more than its
quality. Because of the speculation in coffee prices and the global reach of the coffee
market, coffee farmers can lose money on their crops due to the fluctuations in the global
price of coffee. In the commodity market, farmers deliver their crop to a central co-op,
where their crop is combined with those of other local farmers, and the farmer is paid
according to the going rate for green (unroasted) coffee. These coffees are then purchased
by the large coffee buyers, such as Kraft, Proctor & Gamble, and Nestlé.
Figure 9.15 The specialty coffee industry uses the same set of guiding principles across the
entire value chain. [10]
In contrast, the specialty coffee industry is the portion of the coffee industry that is focused
on the highest quality coffee (Figure 9.15). Quality in coffee is defined in terms of the
transparency of the process that led to the production of the coffee – from farm and soil to
how the coffee beans are separated from the coffee cherries, transportation, roasting, and
finally the brewing process itself. As an industry that is emerging from the commodity
coffee industry, the specialty coffee market is expected to grow from a 53.7 billion-dollar
market in 2021 to 153 billion dollars by 2030 (GlobeNewswire 2022). A few of the
companies leading the evolution of the specialty coffee industry include Intelligentsia
Coffee (in Chicago, Illinois), Stumptown Coffee Roasters (in Portland, Oregon), and George
Howell Coffee (in Acton, Massachusetts). The values that guide this industry are quality
and transparency. These values are associated with the principle that everything done to
the coffee cherry once it is plucked from the tree can degrade the quality, which is locked
into the bean. The process of delivering that bean to the cup must preserve as much of that
quality as possible.
Guided by this principle and these values, the leaders in the specialty coffee industry travel
to the areas where coffee is produced throughout the world and develop relationships with
farmers who are interested in adhering to these values. By doing so, the farmer steps away
from the commodity market, and develops a purchase agreement with the specialty coffee
retailer at rates well above the commodity market price. This begins the process of
transforming not only the way the coffee is farmed, but also how the coffee is processed,
and how it is transported from the farm in Ethiopia or Peru to the roastery in Portland or
Chicago. Every farm and every geographic region has its own unique qualities and
problems to overcome, and so the solutions can range from planting more shade trees
around the coffee trees to long-term projects to bring water to remote farming
communities to facilitate the washing and processing of the green coffee. Relationships in
the specialty coffee industry are more intimate, where the retailer knows the farmer, and
the farmer learns how his green coffee is brought to and consumed by the rest of the world.
Problems are solved locally, and decision making is more democratic and highly
decentralized. The participants in this industry develop more of a system view of the coffee
value chain, and every member of that value chain, from farmer to barista (and ultimately
the consumer), understands the basic guiding principle and values, and plays a role in the
transformation and development of the specialty coffee industry.
Sources: SCAA (2015); GlobeNewswire (2022)
9.5 Organizational Learning
How does an organization improve its products, its services, its manufacturing process, or
its customer service? Should organizational strategy and change management processes
always be developed at the top of the organization and then implemented down to the
business lines? If not, how can strategy or change come from the bottom of the
organization? Top-down strategies for learning, strategy development, or change can
involve focus groups, customer surveys, six-sigma or TQM methods, or formal training,
among other activities. The strategies for bottom-up learning, strategy development, or
change are very different. Imagine an organization in which the employees working in the
assembly plant to produce the same product many times over develop such a high degree
of competence that they begin to find successful shortcuts, or better ways of assembling
the product; or imagine an organization in which the sales staff develop a rich
understanding of what the customer is looking for in its products. Employees have direct
contact with the products of their labour and can develop a highly nuanced understanding
of their jobs and consequently how to improve aspects of the organization that are
separated from senior management often by several layers of management. Employees
also have a keen understanding of how organizational processes fit together. How many
people do you know who have at least one story about an organizational process or
practice that makes no sense or that runs contrary to stated organizational objectives? If
the firm could harness the knowledge in these employees and further encourage this kind
of inquisitive thinking, it could tap into a diverse and almost limitless source of innovation
and improvement.
Peter Senge (1990) discusses the concept of organizational learning in his seminal
book The Fifth Discipline, which explains the concept and benefits of organizational
learning and outlines the necessary conditions for organizational learning. One of the first
aspects of organizational learning is to move away from viewing the organization from the
perspective of a singular focus, such as maximizing shareholder value. Such a singleminded objective tends to engender single-loop learning, and brings with it the difficulties
of trying to predict and bring about a particular future state. Instead, Senge suggests that
“our primary tasks in complex human systems are to become more reflective on the
reasoning that guides our actions and to gradually improve our theories in use” (Senge
2000, 59–82). This sounds very much like double-loop learning, as it requires managers
and employees to re-examine the practices, processes, and assumptions that guide
current activities.
Senge further suggests that rather than becoming focused on specific numeric goals,
which have the potential to limit our natural tendency to try to make sense of our overall
environment, organizations should seek to promote the learning processes that people
would otherwise use to improve (Senge 2000, 59–82). These natural learning processes are
supported through the principles of a learning organization. Thus, organizational learning is
one of the most important attributes necessary to bring about emergent change. The
elements of organizational learning comprise (1) personal mastery, (2) mental models,
(3) building a shared vision, (4) team learning, and (5) systems thinking.
9.5.1 Personal Mastery
Developing personal mastery is not necessarily about becoming very good at what one
does, although people who have a high level of personal mastery do become very good at
what they do. Personal mastery has more to do with personal development, a commitment
to learning, and achieving what one really wants and one’s personal vision (Senge 1990).
Vision flows from a sense of purpose. Where purpose can be thought of as a vocation, a
calling, or what one truly cares about in life, vision represents a picture of where one wants
to be. Goals provide measurable markers of success toward that vision (Figure 9.16).
Figure 9.16 Personal mastery involves working toward goals that support your personal
vision. [11]
Think of what you would like to be doing professionally in five years; how does this vision
connect with your sense of purpose? Do you have goals to help you to indicate whether you
are on track with your vision? Now imagine that you get that job. What comes next for you?
Re-establishing a new vision that is connected to your purpose is the source of energy that
people with a strong sense of personal mastery use to propel themselves through life.
When organizational change is connected to a clearly articulated organizational vision, and
that vision connects with the individual, Senge (1990) suggests that personal mastery will
lead employees to be more committed to their work and to take more initiative at work.
Senge further suggests that organizations can actively promote personal mastery in the
workplace through building climates that foster the development of personal visions, that
encourage frank and open discussions about the workplace, and that question the status
quo.
9.5.2 Mental Models
These are the organized knowledge structures that individuals use to help navigate the
volume and complexity of information that we perceive from our environment. Mental
models help us to describe, ascribe cause to, and explain our surroundings (Mathieu et al.
2000, 273–283). Our mental models help to shape the heuristics, the rules of thumb that
we use to simplify and increase the speed of decision making (Gauffroy and Barrouillet
2009, 249–282). At the team level, shared mental models contribute to higher team
performance (Smith-Jentsch, Mathieu, and Kraiger 2005, 523–535; Burtscher et al. 2011,
257–269). We are largely unaware of the mental models that we employ, but they are
responsible for many of the causal attributions that we make; for example, if we meet
someone who claims to like classical music, we may think that person is well educated.
Because mental models are assumptions or generalizations that are ingrained within us,
they can limit our openness to learning or to understanding novel situations or information
in new ways. HR Planning Notebook 9.5.1 discusses strategies for both individuals and
groups to change existing mental models. In organizations, institutionalized mental models
can limit the firm’s ability to take advantage of opportunities, or to change, or to understand
when change is necessary. Furthermore, organizational defensive routines can insulate the
firm from examining its mental models (Argyris 1991, 99–109). The importance of mental
models to a learning organization is that when we become aware of the mental models that
guide and limit our actions, we can hold them up to the light and are in a better position to
evaluate the quality and context of our decision making. When organizational groups
become aware of their mental models and open them up to critical examination,
organizations can understand when their mental models no longer serve them successfully
in a changing environment, and can adapt their mental models to the changing conditions.
A planning method that organizations can use to challenge existing mental models is
scenario planning (refer to Chapter 5, Determining HR Demand) (Chermack and Swanson
2008, 129–146). Other methods to institutionalize the questioning and testing of mental
models include practices that encourage reflective skills in employees, and a culture that
allows employees to challenge organizational thinking. As shown in Figure 9.17, shared
mental models involve overlapping knowledge shared by all members of the group.
Figure 9.17 Team Mental ModelsLong Text Description
HR Planning Notebook 9.5.1: How to Change Mental Models
This chapter highlights the importance of being able to adapt mental models in order to
facilitate learning and be able to accept change. Mental models provide us with our frame
of reference to understanding what goes on around us. Mental models play a very
important role in survival, as they help us to filter large amounts of complex information so
that we can make quick decisions about whether a situation represents a threat and how
we should respond. Because mental models help us to interpret the world around us, they
are also responsible for our biases, and when a mental model is incorrect, it can lead to
poor decisions. Mental models are deeply embedded within us, and as a consequence
they are difficult to change. It can be a challenge to become aware of the mental models
that we are even using. But for an individual to change behaviour, it is necessary to adjust
their mental model.
For a person to adjust a mental model, it is necessary for them to experience a situation or
to encounter information that causes them to examine that mental model. For example,
imagine that a person who believes that coffee is bad for their health meets for lunch with a
friend who is extremely health-conscious, and that friend orders a coffee. This forms a
discrepancy between their mental model that coffee is bad and the health knowledge that
their respected friend holds. One way to reconcile this discrepancy is to change their
existing mental model about how bad coffee is for one's health.
Taking this idea into an organizational context, it is possible for organizational leaders and
supervisors to encourage employees to adjust their mental models in two ways:
•
Provide learning and context around the reasons why the change is necessary.
•
Allow for adequate context and information so that people can connect the
information to their own frame of reference. If people can connect the new
information to their existing mental model, it might cause them to adjust that
mental model.
If new information does not connect to an existing mental model, it will not be adequate to
inspire an adjustment to that mental model. Engaging people in reflective conversation can
also help to inspire adjustments to mental models. The overall desire when going through a
change initiative is to bring about a shared understanding of the need for change and the
kinds of behaviours that are required to bring about that change. The willingness to
examine one’s mental models and adjust those models when necessary is a critical skill
that leads to organizational learning and facilitates successful change.
Source: Blackman et al. (2022, 1–21)
9.5.3 Shared Vision
Senge defines shared vision as “the answer to the question ‘What do we want to create?’”
(Senge 1990). A shared vision helps to connect people to a greater purpose, which
facilitates organizational identification and accepting the organization’s goals as one’s own
goals (Ashforth, Harrison, and Corley 2008, 325–374; Fujita et al. 2006, 351–367). Great
leaders tend to encourage a shared vision by creating pictures of the future that are
embedded in important social values (Conger 1991, 31–45). When Steve Jobs shared his
vision in the mid-1980s for NeXT, a computer company that built computers intended for
educators and researchers (Morgan 2019), his vision was to “revolutionize the educational
system of a nation” (Conger 1991, 31–45). People want to do work that matters, and when
an organization can galvanize employees around a shared vision that reflects an important
social purpose, it connects the individual with the other employees and with the
organization in a deep and meaningful way (Senge 1990). In terms of organizational
learning, a shared vision is the bonding element that brings together and focuses the
efforts of employees to pursue personal mastery in ways that are relevant to the goals of
the firm, and helps employees to understand current shared organizational mental models
and develop new shared mental models (Senge 1990).
9.5.4 Team Learning
Have you ever been part of a group that made you feel as though you were performing at a
higher level than you could have ever achieved on your own? We experience team learning
when working with a particularly good team at work, in a successful group project at
school, or with a sports team or a group of musicians. When experiencing team learning,
our individual ideas and efforts are combined with the team’s and amplified by others
within the team to arrive at something we could not have achieved on our own. The most
important element of team learning is open dialogue, where team members feel free to
discuss and share ideas openly and without fear of embarrassment or reproach. Dialogue
is important because it is what enables people to see beyond their own perspective and to
better understand the boundaries of their own mental models. When we include the views
of others into our own thinking, we are broadening our understanding and incorporating
systems thinking into our decision processes.
9.5.5 Systems Thinking
A great deal of organizational thinking tends to be linear in nature: we look at systems in
terms of input-to-output, and we analyze decisions in terms of cost-benefit. Systems
thinking is a way to examine problems by looking at them in the context of the system in
which they occur, rather than as isolated issues. Video 9.4 describes the concept of
systems thinking.
Video 9.4 Systems Thinking [12]
Diagrams of systems that depict systems thinking tend to be circular or iterative, where one
part of the system influences or is influenced by another part of the system. For example, a
systems thinking diagram of pouring your morning cup of coffee may look like the diagram
in Figure 9.18. The desired amount of coffee in your cup influences the angle at which you
hold the coffee carafe, which affects the rate at which your cup fills with coffee, which in
turn influences the coffee level in your cup. This process continues until the cup is filled to
the desired level. Such a feedback loop shows all the participating structures in the system
and leads to a deep understanding of the roles of each of the structures in the system.
Using systems thinking, behaviour is influenced by organizational structures such as the
norms, the management practices, and the human capital and social capital within the
firm (Senge 1990). Viewing organizations from a systems thinking perspective leads away
from viewing actions or behaviours as the sources of problems and looks to the role of
structures in influencing problems. Systems thinking provides a method to understand the
forces that must be influenced in order for change to take place.
Figure 9.18 Systems Thinking Model of Pouring Coffee into a CupLong Text Description
Senge suggests that the five disciplines are interdependent; that each requires the others
in order for a learning organization to be realized (Senge 1990). For example, vision in the
absence of systems thinking cannot lead to a rich understanding of how the vision can be
implemented successfully. Without vision, personal mastery is not possible, since
individuals cannot achieve the necessary creative tension without understanding where
one needs to be (i.e., vision) in relation to where one currently stands.
Overall, the five disciplines of a learning organization are vitally important to enabling
emergent change. One principle of emergent change is that the order that governs chaos
arrives through simple rules that are widely understood. In the context of a learning
organization, these simple rules can be represented by the organization’s shared vision.
Shared mental models and a shared vision ensure that the organizational structures and
processes that emerge through chaordic change are in line with organizational needs and
environmental constraints or opportunities. Learning organizations permit change as a
bottom-up process as well as a top-down process by essentially putting everyone “on the
same page” and then allowing them to fill in the lines together. As line-level employees
learn new methods to improve products or new ways to satisfy customers, learning
organizations build the structures to permit that learning to move up through the
organization, where those new methods become incorporated into the organization’s
practices and get implemented back down throughout the firm. Using organizational
learning, firms remain in a constant state of change, or adaptation, by taking in new
learning, wherever it is experienced within the firm, and diffusing it through the entire
organization. In this way, emergent change occurs spontaneously and as needed, rather
than as a planned reaction to an event.
9.6 Strategic HR and Change
At this point, it is clear that organizational change is a dynamic and unpredictable process.
Whether change is approached from a planned perspective, an emergent perspective, or a
combination of perspectives, several elements that are common to all models of change
also overlap with the HR function, which provides guidance around the aspects of HRM
that are critical to any successful change initiative. The HR function contributes to
organizational change by supporting the change process itself (i.e., by helping the
organization to move through each stage of change), and also by managing the content of
the HR function to support change (Alfes, Truss, and Gill 2010, 109–127). In other words,
the content of the HR function includes the recruitment, selection, performance
management, and planning activities that must be done to support the change process.
When HRM is involved in the change process and develops content to support that
process, it is at its most proactive in terms of change readiness. When the HR function is
not involved in developing the change process, the content of the HR function to support
change becomes reactive, thereby diminishing the HR function’s ability to support change.
Change efforts should be guided by a set of established values, and all change involves
new learning (Ledford and Mohrman 1993, 143–173). These two aspects are critical to
change efforts and are foundational to the HR function. Therefore, the two areas of HRM
that are involved in strategic change are (1) clarifying and communicating values, and (2)
training, education, and organization learning.
9.6.1 Clarifying and Communicating Values
When TD Bank acquired Canada Trust Financial Services in 2000, the main messages that
were made clear were that customers would immediately experience better service
through longer banking hours and more access to automated banking machines, and that
the new organization would do as much as possible to minimize the negative
consequences to employees as a result of the acquisition (Robertson and Marranca 2000).
It is interesting to see that both these values flow from TD Canada Trust’s central value
proposition that “banking can be this comfortable.” Part of HR’s role at TD Canada Trust
during this time included developing planning initiatives to minimize the number of layoffs
that are inevitable with an acquisition. Because TD Canada Trust is a large company, these
plans incorporated the redeployment of employees from areas of the firm that now
contained redundancies to areas that were growing, by limiting new hires to allow for
attrition to reduce a surplus of human capital, and providing severance policies that
exceeded industry standards as well as outplacement training and services. An important
aspect of communicating a set of organizational values is making certain that no HR
practices are inconsistent with the message that is being communicated.
The HR function plays a very important role in ensuring that the need for change is
understood throughout the firm. Consistent with Lewin’s three-step model of change,
senior management must communicate the need to change the status quo, and HR plays a
role in demonstrating how the new state and the process for moving to that state is
consistent with the firm’s values. HR Planning Today 9.6.1 discusses how the HR function
can leverage technology to reinforce organizational change efforts. This helps to bring
about employee buy-in to the change initiative.
9.6.2 Training, Education, and Organizational Learning
The other area of HRM that is critical to implementing strategic change is training,
education, and organizational learning. The HR function is responsible for developing each
of the dimensions of organizational learning discussed earlier in this chapter. To the extent
that HR fosters the five dimensions of organizational learning, it builds a culture of learning
within the organization. This enhances any training that occurs within the firm, and it
encourage employees to take a learning approach to daily tasks. The HR function must also
thoroughly understand the new activities that are required to get the firm to the new state
and to refreeze the new state. Based on these strategic activities, HR can determine the
KSAOs and competencies required to perform these activities and institute training,
redeployment, and hiring where appropriate. Organizational change requires a great deal of
new learning, and when HR anticipates the learning needs, and has a culture in place that
facilitates learning, organizational change has a better chance of success.
HR Planning Today 9.6.1: How Technology Can Assist Organizational Change Efforts
Technology is having such a large effect on the HR function that you have read about its
impact on HRM in almost every chapter of this text. However, little is currently known about
how technology may be affecting the ways in which change is implemented or about the
effectiveness of change efforts.
Digital technology includes anything that assists with the collection and use of data, such
as word processing technology, social media, images, spreadsheets and databases, and
sensors. There are three primary means through which digital technology can impact
change efforts:
•
Adaptiveness. Digital technology permits the acquisition of customer and
employee information faster and in more detail than ever before. The increased
speed of information gathering and the volume of that information can be used to
check on the success of individual steps in a change process. For example, brief
daily surveys or daily employee dairies can be used to understand whether
employees in general grasp the purpose of the change and agree with the change as
it progresses through the stages of the change process.
•
Personalization. Artificial intelligence and machine learning can be harnessed to
create messaging at the individual level around change. Machine learning can be
used to tailor messages to suit how individuals relate to and understand
information; in the context of change management, this could be used to create
messages that are more effective in changing individuals' mental models.
•
Openness. Social networking and other communication-based technology can be
used to increase the interactions among people involved in a change effort, thereby
giving voice to a larger number of participants in more meaningful ways. Statistical
techniques can also be used to cluster large amounts of data flowing through social
networks into meaningful patterns. This can help to find meaning in large amounts
of textual data that might otherwise be missed.
Digital technology has the capacity to have a large influence over change management
efforts by giving the organization greater adaptiveness for faster knowledge acquisition and
learning, higher levels of personalization to ensure that all individuals understand the
importance and purpose of the change, and increased levels of communication among
those for whom change efforts are relevant.
Source: Kanitz and Gonzalez (2021, 447–458)
Summary
L.O. 9.1 Organizations are complex, open systems that both influence and are influenced
by their environment. The interconnected nature of organizational structures, processes,
practices, members, and the changing environment renders the prediction of change
outcomes a practical impossibility: the chances of unforeseen events or interactions and
of unintended consequences are simply too high.
L.O. 9.2 Most models of planned organizational change share the same basic attributes,
which begin with recognizing a need to change, diagnosing what needs to change,
implementing the required change, and then making the changes part of a new way of
working. The culture of the organization, its leadership and leadership structure, the
organization’s learning capabilities, the purpose of the change, and the timelines for
delivering change will all impact the way in which an organization focuses on each of the
change attributes. In order for change to be successful, it must fit with the organization’s
culture, capabilities, and resources.
L.O. 9.3 The planned model of change provides practitioners with all the tools required to
understand how to implement change. Force-field analysis provides the tools to diagnose
what forces may be preventing people from moving toward change and what forces may
help to amplify the need to change, thereby giving practitioners tools to help unfreeze the
status quo. Action research provides empirical evidence to track whether the path toward
change is achieving success and to help move toward effective change. Group dynamics
helps to focus group efforts toward change so that all individuals are connected to a larger
movement, and the three step model of change brings all the elements together to form a
coherent change process.
L.O. 9.4 The Planned Approach to change shows us that change is often dynamic and
complex. Because organizations are open systems that both affect and are affected by
their environment, change can become highly unpredictable. Chaos theory suggests that
systems that appear to behave chaotically may actually be responding in complex ways to
a few basic guiding principles. By using a simple set of principles to guide employee
behaviours, organizations can establish a bottom-up change process that emerges from
individual learning to become team learning, and ultimately changes the organization.
Emergent change is unplanned and keeps the organization in a constant state of change
and readiness.
L.O. 9.5 Organizational learning is a process that begins with the adoption of learning goals
rather than achievement goals. While achievement goals can be part of the process, the
overall focus is on improving our understanding of how and why we do what we do in the
organization. Organizational learning provides employees with the tools to develop
personal mastery, to examine their mental models in use, to promote team learning and a
shared vision, and to use a systems view of organizational process. These attributes enable
individual learning to be captured by the team and codified into formal learning that can be
distributed throughout the organization, thereby changing the organization. This is why
organizational learning is key to enabling emergent change within organizations.
L.O. 9.6 At their root, both the Planned approach and the emergent approach to change
share an emphasis on the importance of learning, of having a shared sense of purpose, and
of being able to adapt the change implementation as it progresses. As organizations move
toward flatter structures, more fluid job roles, and greater employee autonomy, they will
likely turn increasingly toward efforts to institutionalize a culture of change, and
incorporate elements of both planned and emergent change into change efforts. Both the
Planned approach and emergent approach to change can influence how organizations
move toward that path.
Glossary
Action research An iterative trial-and-error process of discovery that involves diagnosing a
problem, planning a solution, acting on the solution, evaluating the results of the actions,
learning from the outcomes, and asking new questions.
Chaos theory Complex systems are based on some form of order but can behave in
unpredictable ways. The unpredictability of these systems results from the many
interactions of the system variables and the consequences of differences in the initial
states of those variables.
Double-loop learning A method of learning that involves questioning current
assumptions, examining a problem from different perspectives, and questioning the
validity of the problem.
Force-field analysis A framework for analyzing a problem that seeks to identify all the
relevant factors and people that are acting to either sustain the current state or move away
from the current state.
Mental model An internal representation of the way things work. Mental models influence
the causal attributions that we make.
Moving As the second stage of a change process, the moving stage involves the trial-anderror process of taking action to move the firm through the intended change.
Open system A system that receives inputs from its external environment.
Organizational learning An approach to learning that applies double-loop learning and an
attempt to understand how the entire system may be affected by change. Organizational
learning allows knowledge from any individual in the organization to become incorporated
into the firm’s culture and processes.
Personal mastery The understanding of one’s purpose and the development of a personal
vision.
Refreezing The third and final stage of a change initiative, refreezing involves putting
policies, practices, and structures in place to establish new norms around the change.
Single-loop learning The attempt to solve a problem using a single strategy, without
examining the validity of the problem itself.
Social networks The networks of ties that an individual has with other individuals.
Systems thinking Systems thinking views change issues within the framework of the entire
organization. This view helps to understand the underlying causes of problems and the
potential outcomes of change initiatives.
Team learning The interaction of individual ideas and efforts toward a team objective that
results in outcomes that exceed the capabilities of any individual on the team.
Unfreezing As the initial stage of organizational change, unfreezing involves the
development of a shared understanding among concerned parties that a particular change
is necessary.
References
Alfes, K., C. Truss, and J. Gill. 2010. “The HR Manager as Change Agent: Evidence from the
Public Sector.” Journal of Change Management 10 (1): 109–127.
https://doi.org/10.1080/14697010903549465.
Anderson, C. 2015. “There’s a Good Reason Why HR Should Lead Change Initiatives.”
Talent Management and HR. Accessed August 29, 2022. https://www.tlnt.com/theres-agood-reason-why-hr-should-lead-change-initiatives/.
Appelbaum, S. H., J. Roberts, and B. T. Shapiro. 2013. “Cultural Strategies in M&As:
Investigating Ten Case Studies.” Journal of Executive Education 8: 33–58.
https://digitalcommons.kennesaw.edu/jee/vol8/iss1/3.
Argyris, C., R. Putnam, and D. M. Smith. 1985. Action Science, San Francisco, CA: JosseyBass.
Argyris, C. 1991. “Teaching Smart People How to Learn.” Harvard Business Review 3: 99–
109.
Ashforth, B. E., S. H. Harrison, and K. G. Corley. 2008. “Identification in Organizations: An
Examination of Four Fundamental Questions.” Journal of Management 34: 325–374.
https://doi.org/10.1177/0149206308316059.
Beaulieu, R. J. 2013. “Action Research: Trends and Variations.” Canadian Journal of Action
Research 14: 29–39. https://doi.org/10.33524/cjar.v14i3.99.
Beer, M., and N. Nohria. 2000. Breaking the Code of Change. Boston, MA: Harvard Business
School Press.
Blackman, D. A., F. Buick, M. E. O’Donnell, and N. Ilahee. 2022 “Changing the Conversation
to Create Organizational Change.” Journal of Change Management (February): 1–21.
https://doi.org/10.1080/14697017.2022.2040570.
Burnes, B. 1992. Managing Change: A Strategic Approach to Organizational Development
and Renewal. London: Pitman Publishing. https://doi.org/10.1111/j.14676486.2004.00463.x.
Burnes, B. 2004. “Kurt Lewin and the Planned Approach to Change: A ReAppraisal.” Journal of Management Studies 41: 977–1002.
Burtscher, M. J., M. Kolbe, J. Wacker, and T. Manser. 2011. “Interactions of Team Mental
Models and Monitoring Behaviors Predict Team Performance in Simulated Anesthesia
Inductions.” Journal of Experimental Psychology 17: 257–269.
https://doi.org/10.1037/a0025148.
Chermack, T. J., and R. A. Swanson. 2008. “Scenario Planning: Human Resource
Development’s Strategic Learning Tool.” Advances in Developing Human Resources 10:
129–146. https://doi.org/10.1177/1523422307313530.
Clausen, K. W. 2014. “Action Research: Not Just for the Classroom.” Canadian Journal of
Action Research 15: 1–2. https://doi.org/10.33524/cjar.v15i1.116.
Conger, J. A. 1991. “Inspiring Others: The Language of Leadership.” Academy of
Management Executive 5: 31–45. https://doi.org/10.5465/ame.1991.4274713.
Conger, J. A. 1998. “The Necessary Art of Persuasion.” Harvard Business Review 76: 84–95.
https://hbr.org/1998/05/the-necessary-art-of-persuasion.
Crossan, M. J., M. J. Rouse, J. N. Fry, and P. J. Killing. 2008. Strategic Analysis and
Action, 7th ed. Toronto ON: Pearson Prentice Hall.
Dickens, L., and K. Watkins. 1999. “Action Research: Rethinking Lewin.” Management
Learning 30 (2): 127–140. https://doi.org/10.1177/1350507699302002.
Ferris, G. R., D. C. Treadway, P. L. Perrewé, R. L. Brouer, C. Douglas, and S. Lux. 2007.
“Political Skill in Organizations.” Journal of Management 33 (3): 290–320.
https://doi.org/10.1177/0149206307300813.
Flood, R. L., and E. R. Carson. 1993. Dealing with Complexity: An Introduction to the Theory
and Application of Systems Science. New York, NY: Plenum Press.
https://doi.org/10.1007/978-1-4757-2235-2.
French, W. L., and C. H. Bell. 1999. Organizational Development: Behavioral Science and
Interventions for Organizational Improvement, 6th ed. Upper Saddle River, NJ: PrenticeHall.
Fujita, K., Trope, Y., Liberman, N., and M. Levin-Sagi. 2006. “Construal Levels and SelfControl.” Journal of Personality and Social Psychology 90 (3): 351–367.
https://doi.org/10.1037/0022-3514.90.3.351.
Gauffroy, C., and P. Barrouillet. 2009. “Heuristic and Analytic Processes in Mental Models
for Conditionals: An Integrative Developmental Theory.” Developmental Review 29: 249–
282. https://doi.org/10.1016/j.dr.2009.09.002.
Gerstner, L. V., Jr. 2009. Who Says Elephants Can’t Dance? HarperCollins e-books.
GlobeNewswire. 2022. “Specialty Coffee Market to Reach USD 152.69 Billion by 2030 |
Rising Intake of Coffee and Increasing Count of Commercial Capsule Machines to Drive
Growth, Says the Brainy Insights.” Accessed August 28, 2022.
https://www.globenewswire.com/en/news-release/2022/04/05/2416928/0/en/SpecialtyCoffee-Market-to-Reach-USD-152-69-Billion-by-2030-Rising-Intake-of-Coffee-andIncreasing-Count-of-Commercial-Capsule-Machines-to-Drive-Growth-Says-The-BrainyInsights.html.
Hayes, J. 2010. The Theory and Practice of Change Management, 3rd ed. New York, NY:
Palgrave MacMillan.
Hock, D. 2000. “Birth of Chaordic Change.” Executive Excellence 17: 6–8.
Hultman, K. E. 1995. “Scaling the Wall of Resistance.” Training and Development 49: 15–28.
IBM. 2009. “Chronological History of IBM.” Accessed August 29, 2022. www03.ibm.com/ibm/history/history/decade_1990.html
Kanitz, R., and K. Gonzalez. 2021. “Are We Stuck in the Predigital Age? Embracing
Technology-Mediated Change Management in Organizational Change Research.” The
Journal of Applied Behavioral Science 57, no. 4 (September): 447–458.
https://doi.org/10.1177/00218863211042896.
Kindred Credit Union. (n.d.). "About Us." Accessed June 29, 2022.
https://www.kindredcu.com/AboutUs/
Kotter, J. P. 1990. “What Leaders Really Do.” Harvard Business Review 68: 112–117.
Kotter, J. P. 2007. “Leading Change: Why Transformation Efforts Fail.” Harvard Business
Review 85: 96–103.
Krackhardt, D., and J. R. Hanson. 1993. “Informal Networks: The Company Behind the
Chart.” Harvard Business Review 71: 104–111
Ledford, G. E., and S. A. Mohrman. 1993. “Self-Design for High Involvement: A Large-Scale
Organizational Change.” Human Relations 46: 143–173.
https://doi.org/10.1177/001872679304600202.
Levy, D. 1994. “Chaos Theory and Strategy: Theory, Application, and Managerial
Implications.” Strategic Management Journal 15: 167–178.
https://doi.org/10.1002/smj.4250151011.
Mathieu, J. E., T. S. Heffner, G. F. Goodwin, E. Salas, and J. A. Cannon-Bowers. 2000. “The
Influence of Shared Mental Models on Team Process and Performance.” Journal of Applied
Psychology 85 (2): 273–83. https://doi.org/10.1037/0021-9010.85.2.273.
Morgan, C. 2019. “Steve Jobs Saved Apple with $12-Million Failed Computer Company next
- Business Insider.” Business Insider. August 21, 2019.
https://www.businessinsider.com/steve-jobs-12-million-dollar-failure-saved-apple-next2019-8.
Power, B. 2011. “Why Doesn’t HR Lead Change?” Harvard Business Review Digital
Article (November).
Reynolds, C. n.d. “Boids (Flocks, Herds, and Schools: A Distributed Behavioral Model).”
Www.red3d.com. Accessed September 2, 2022. http://www.red3d.com/cwr/boids.
Robertson, K., and R. Marranca. 2000. “TD Bank Financial Group Responds to Minister of
Finance Decision on Acquisition of CT Financial Services Inc.” (January).
SCAA. 2015. “U.S. Specialty Coffee Consumption Report.” https://sca.coffee/.
Schein, E. H. 1999. The Corporate Culture Survival Guide. San Francisco, CA: Jossey-Bass.
Senge, P. M. 1990. The Fifth Discipline: The Art and Practice of the Learning Organization.
New York, NY: Doubleday.
Senge, P. M. 2000. “The Puzzles and Paradoxes of How Living Companies Create Wealth:
Why Single-valued Objective Functions Are Not Quite Enough.” Breaking the Code of
Change: 59–82. Boston, MA: Harvard Business School Press.
Smith-Jentsch, K. A., J. E. Mathieu, and K. Kraiger. 2005. “Investigating Linear and
Interactive Effects of Shared Mental Models on Safety and Efficiency in a Field
Setting.” Journal of Applied Psychology 90: 523–535. https://doi.org/10.1037/00219010.90.3.523.
Susman, G. I. 1983. Action Research: A Sociotechnical Systems Perspective, edited by G.
Morgan. London: Sage. 95–113
T&T Supermarket. n.d. "About Us." Accessed June 29,
2022.https://www.tntsupermarket.com/aboutus/.
Tetenbaum, T. J. 1998. “Shifting Paradigms: From Newton to Chaos.” Organizational
Dynamics 26: 21–32. https://doi.org/10.1016/S0090-2616(98)90003-1.
Ulrich, D., M. Kryscynski, and M. Ulrich. 2017. “Competencies for HR Professionals Who
Deliver Outcomes.” Employment Relations Today 44(2), 37–44.
https://doi.org/10.1002/ert.21623.
Credits
[1] Image by STUDIO GRAND WEB/Shutterstock.com
[2] Video courtesy of GreggU/YouTube
[3] Image by Prostock-studio/Shutterstock.com
[4] Image by leksiv/Shutterstock.com
[5] Video courtesy of Practical Psychology/YouTube
[6] Image by JHVEPhoto/Shutterstock.com
[7] GIF courtesy of gadgetify.com and Gadgetify/YouTube
[8] Image by Henk Bogaard/Shutterstock.com
[9] Video courtesy of Tina Lee, CEO of T&T Supermarket
[10] Image by Media Lens King/Shutterstock.com
[11] Image by fizkes/Shutterstock.com
[12] Video courtesy of MIT xPRO/YouTube
Case Study: Change at Tiger Safety
Tiger Safety (Tiger) has been manufacturing high-quality leather boots and shoes primarily
for use in the skilled trades and heavy construction work markets since 1935. Tiger boots
are built tough, to withstand potentially dirty and demanding working conditions, and last
for years. In addition to being tough, Tiger boots must be comfortable to wear and work in
all day long. Tiger is one of only three boot/shoe companies in the United States that still
performs all manufacturing activities in the United States. This adds the distinct benefit of
a made-in-America label to a boot that has built a solid reputation as being among the best
work boots available. Tiger currently sells its footwear through retailers of work and safety
clothing and goods, as well as through its own nine factory-owned retail stores and an
online store within the United States. With 250 factory workers, 50 corporate employees,
30 workers in distribution, and 45 retail employees, Tiger generates roughly 200 million
dollars in revenues yearly.
While the cost of American labour is much higher than the labour rates available to the
majority of the boot and shoe manufacturers who use overseas manufacturing, the cost
disadvantage is partly offset by the fact that Tiger has its own tannery. The animal hides
used in the production of leather boots and shoes must be put through a lengthy treatment
process before being dyed and then used to make boots or shoes. This ancient art is
performed in tanneries, of which there are only a few remaining in North America. With so
few tanneries in the world and the importance of high-quality leathers in the production of
boots and shoes, tanneries can have a strong influence on the price and quality of leathers
available to manufacturers. Thus, Tiger's tannery is an important resource to the firm. Tiger
boots are priced at the top end of the market for work boots and shoes. The average price
for a pair of Tiger boots is around 300 dollars, with a range from 250 to roughly 450 dollars
for the company’s products, whereas many of its competitors in the boot/shoe industry
price their products at 100 dollars or less. However, Tiger claims that many of its boots that
were purchased five years ago or more are still being worn today, and that with proper care
and maintenance, a Tiger boot has an indefinite lifespan. To support this claim, Tiger's
website shows many of the aspects of the company’s production methods, which involve a
high degree of highly skilled hand-crafted work and include a recrafting service. Once the
sole wears out of the boots or shoes, owners of Tiger brand boots can return their footwear
to the company, where the boot will be completely stripped down and rebuilt with a new
sole, and the leather refinished on the equipment used to originally produce the boot, all
for a modest fee (around 125 dollars).
The market for work boots has been steady over the past 25 years, and production can be
forecast relatively easily using economic indicators of growth in the construction and
skilled trades industries. Tiger has a very strong brand name in these markets and its
market share has remained steady at around 10 percent. However, while 80 percent of its
production is purchased in the construction and skilled trades market, the other 20
percent of production goes to the casual menswear fashion market, and this trend is
increasing. It seems that young men are increasingly wearing high-quality leather boots
and shoes as part of current fashion trends, and the Tiger's cachet in the construction and
skilled trades market gives it added value as a choice of menswear. Tiger does not have the
manufacturing capacity or organizational capabilities to adequately serve the growing
casual menswear market without making changes, and management is at a crossroads.
Dave Davenport, the CEO, believes that this represents a tremendous opportunity for Tiger
to create a new market and become a bigger company. Preet Gupta, the head of
operations, is not so convinced; she points out that in order to develop this market, Tiger
will need to adopt an entirely new marketing strategy, and deepen relationships with
popular retailers like Aldo and The Gap, to say nothing of the differences in boot and shoe
design between the construction market and the casual menswear market. Do buyers in
the casual market really want a steel-toed dress shoe? New designers will need to be hired,
and the manufacturing needs of the as-yet-unknown boot and shoe designs will need to be
assessed. On top of all this, the cost of leather is increasing due to the increased global
demand for leather goods. Tiger’s boots are currently double the cost of the average
buyer’s boot/shoe. As the cost of production continues to increase, will Tiger have to price
itself out of the market altogether, or cut its quality to better compete with the lower end of
the market? Finally, expanding into this market would require hiring and training another
shift of workers. Given that Tiger uses skilled workers, training will take more than a month
to bring a new employee to the point of being self-sufficient on the production line.
Dave has countered that this expansion would take advantage of Tiger’s tannery, which
would protect Tiger from many of the effects of the increase in the price of leather. Dave
also believes that these other required capabilities can be developed quickly, or that Tiger
could consider producing a new “economy” line of boots and shoes for the casual
menswear market that uses the same leathers as the premium footwear but is glued
together rather than hand-stitched, and so cannot be recrafted. This line of footwear would
not require the level of skilled production of the premium line, but would retain much of the
Tiger look and feel that customers have come to appreciate. Cecily Wan, head of
marketing, bristles every time she hears this suggestion, and warns that such a line of
economy boots would threaten Tiger's value proposition and threaten Tiger’s strong brand
value. However, she is excited by the possibility of expanding into a new market, and the
enormous opportunity that an expansion could hold for Tiger.
At the most recent corporate meeting, senior management agreed that this expansion is
worth the risk. However, they are not certain how to introduce this idea to employees, or
how to proceed with the change. Some of the questions and concerns even among senior
management are not yet fully answered or addressed, and the line employees are likely to
raise many issues as well, especially around the ways in which their jobs may be affected
as a result of the proposed changes. Although they are not unionized, the employees are
highly skilled, and Tiger holds its long-standing employees in very high regard.
Case Study Question 9.1
Would you recommend that Tiger Safety take a planned approach, emergent approach, or
blended approach to this change effort? If you think the company should take a blended
approach, what portions of the change should be planned and what should be emergent?
Explain your choice of approach with a draft of your change plan.
Chapter 10: Downsizing and Restructuring
Figure 10.1 Downsizing is one way to improve an organization’s efficiency by reducing the
workforce, redesigning the work, or changing the systems of the organization. [1]
This chapter was written by Professor Terry H. Wagar, Department of Management,
Sobey School of Business, Saint Mary’s University, Halifax, Nova Scotia.
Learning Outcomes
L.O. 10.1 Understand the downsizing phenomenon and why downsizing is relevant in
today's environment.
L.O. 10.2 Define downsizing and restructuring, as well as the various types of downsizing
strategies.
L.O. 10.3 Describe the reasons why organizations may need to downsize.
L.O. 10.4 Understand the issues relating to artificial intelligence and job loss.
L.O. 10.5 Recognize the need to plan for the downsizing and be aware of ethical issues and
the challenges associated with job loss.
L.O. 10.6 Recognize the need to address concerns of the survivors of downsizing.
L.O. 10.7 Describe the financial consequences of downsizing.
L.O. 10.8 Understand additional consequences of downsizing and what downsizing
strategies are effective in enhancing organizational performance.
L.O. 10.9 Comprehend the importance of labour relations issues when considering or
engaging in downsizing.
Introduction
Downsizing: A Thing of the Past?
It appears that downsizing is far from over. Within a few months of the declaration of the
COVID-19 pandemic in Canada, layoff announcements came flowing in. For example, in
mid-March of 2020, the Calgary Stampede announced that 900 employees would be laid
off; General Motors, Ford, and Toyota announced the suspension of all production
(resulting in layoffs of 4,000, 6,900, and 8,000 workers, respectively); Cirque de Soleil
suspended all of its shows and laid off 95 percent of its workforce; and all airlines
announced major reductions in staff (Maclean's 2020). Further details are available
from Maclean’s Canada Layoff Tracker.
Similarly, Air Canada announced plans to eliminate about 20,000 jobs, Porter Airlines laid
off the majority of its employees, Leon’s cut almost 4,000 employees, and Bombardier put
12,400 workers on furlough (Zadikan 2020). However, Amazon hired several thousand
employees as online sales increased markedly, and some employers began rehiring
employees with the establishment of the federal wage assistance program. As the
pandemic continued, several organizations continued to reduce staff, but others were
suffering from labour shortages.
Even today, organizations fail to follow best practices during a downsizing. Consider the
example provided in HR Planning Notebook 10.1.1.
10.1 The Downsizing Phenomenon
In the 1990s, organizations became obsessed with reducing the workforce and operating in
a “lean and mean” fashion. This was followed by an extended period where the focus was
on employee retention and winning the war for talent. However, downsizing returned with a
flourish beginning around 2008 with the global financial crisis. The continuing impact of
sluggish economic growth, huge debt burdens facing governments around the world, and
rapid changes in technology (such as artificial intelligence and digitization) suggest that
cost cutting and downsizing are unlikely to disappear in the near future (Gordon 2014). In
addition, the COVID-19 pandemic is having major impacts on staffing levels and the future
of work.
There is growing evidence that firms can become too “lean,” and downsizing may cut into
the muscle of the organization. Furthermore, a number of the reductions have been
characterized as “mean”— destroying the lives of victims of cutbacks and leaving a
demoralized and frightened group of survivors of downsizing. In today’s environment,
downsizing and restructuring are critical components of HR planning.
HR Planning Notebook 10.1.1: How Not to Downsize
Less than a month before Christmas, Better.com CEO Vishal Garg laid off about 900
employees (about 15 percent of the workforce) using Zoom. Employees who received an
unexpected Zoom link were told by the CEO in a 2-minute-and-33-second call that they
were being laid off. The CEO started the conversation by stating “I come to you with not
great news” and went on to explain that the real estate market was changing and the
company needed to address performance and efficiency concerns. “If you’re on this call,
you are part of the unlucky group being laid off. Your employment here is being terminated,
effective immediately.” The laid-off employees tried to contact each other but were
immediately logged out of the company’s computer system. The Zoom video call
announcing the layoffs is presented in Video 10.1.
Video 10.1 Layoffs at Better.com [2]
Source: Goodyear (2021)
Historically, the focus of many organizations was on growth, or the “bigger is better”
syndrome. As a result, managers responsible for developing a downsizing strategy often
had little experience in effectively managing the HR planning process and very little
guidance from the management literature. Although the past 30 years have seen a
considerable volume of articles on downsizing and restructuring, the suggestions they
contain often are based on a single experience, are not supported by research, and
frequently are in conflict. For instance, should cuts be targeted, or be across the board?
Will the firm’s stock price increase or decrease when the firm announces a major layoff or
restructuring? Should an employer carry out all of the cuts at once, or stage them over a
period of time? Does downsizing improve organizational performance?
Downsizing is not just a Canadian phenomenon. Organizations around the world are
striving to improve their competitive position and respond to the challenges of a global
economy and COVID-19. For example, in the summer of 2022, Tesla initiated a worldwide
hiring freeze and a reduction of about 10 percent of the current employee base. At the
same time, Elon Musk stated that there may be a working prototype of Tesla’s humanoid
robot, called Optimus, which could potentially operate Tesla’s driver-assistance software
and respond to voice commands. Also, Musk indicated that remote work is unacceptable
and employees not wanting to return to the office should look for work elsewhere (Gunther
2022).
Video 10.2 describes how a recent market downturn has resulted in layoffs and hiring
freezes across various industries, most notably in major technology firms.
Video 10.2 Layoffs and Hiring Freezes [3]
Government policy can also have a major impact on downsizing. For instance, Britain’s exit
from the European common market was expected to result in the shifting of thousands of
financial sector jobs out of London, England. While pessimists predicted huge job losses in
the London financial sector (with some experts suggesting up to 75,000 jobs could be lost)
as a result of Brexit, by 2021 the estimate had been reduced to about 7,400 jobs. Moreover,
while 2020 was characterized by some job losses in the industry due to COVID-19, the last
quarter of 2021 saw the largest growth in financial service jobs since 2017 (Financial
Times 2022).
Government-imposed lockdowns during the pandemic had a major impact on
employment, with employers being required to shut down or alter their business
operations. For example, lockdowns in early 2022 (with the spread of the Omicron variant)
led to employees in several industries (such as restaurants, gyms, theatres, sports venues,
and so on) being out of work. At the same time, other industries (such as emergency
services, health care, transit, police, and fire) were experiencing major staff shortages.
10.2 Defining Downsizing and Restructuring
It is important to clarify what is meant by downsizing. Managers and academics use the
word to mean a number of different activities. Obviously, it is difficult to understand the
effect of downsizing if we do not understand clearly what it means.
Listed below are examples of words used to describe downsizing (Cameron 1994; Moore
1996; Ryan and Macky 1998, 29–45; Tsai and Yen 2008, 367–384):
•
building down
•
chopped
•
compressed
•
consolidated
•
declining
•
degrown
•
dehired
•
demassed
•
derecruitment
•
destaffed
•
disemployed
•
dismantled
•
displaced
•
downshifted
•
downsized
•
fired
•
involuntarily separated
•
personnel surplus reduction
•
ratcheted down
•
rationalized
•
reallocated
•
rebalanced
•
redeployed
•
redesigned
•
reduction-in-force
•
redundancy elimination
•
re-engineered
•
reorganized
•
reshaped
•
resized
•
resource allocation
•
restructured
•
retrenched
•
rightsized
•
slimmed
•
slivered
•
streamlined
•
workforce imbalance correction
Kim Cameron, a leading scholar in the area of organizational change, has
defined downsizing as follows:
Downsizing is a set of activities undertaken on the part of management and
designed to improve organizational efficiency, productivity, and/or competitiveness.
It represents a strategy implemented by managers that affects the size of the firm’s
workforce, the costs, and the work processes (Cameron 1994, 189-211).
Note that Cameron's definition is not the only one. Some definitions are much narrower or
broader. For example, some scholars define employee downsizing as “a planned set of
organizational policies and practices aimed at workforce reduction with the goal of
improving firm performance”(Datta et al. 2010, 282), while others refer to downsizing as “a
selective reduction in organizational resources, including different combinations of
reductions in physical, financial, organizational and human resources”(Sheaffer et al.
2009, 951).
As presented in Video 10.3, during the COVID-19 pandemic, many people were informed
about job layoffs via video conferencing apps such as Zoom.
Video 10.3 Layoffs via Video Conferencing [4]
10.2.1 Types of Downsizing Strategies
Table 10.1 identifies the three types of downsizing strategies: workforce reduction, work
redesign, and systematic change (Cameron 1994, 189–211):
Table 10.1 Downsizing Strategies
Workforce Reduction
•
short-term
strategy
•
aimed at cutting
the number of
employees
through
attrition, early
retirement or
voluntary
severance
packages,
layoffs, or
Work Redesign
•
medium-term
strategy
•
focuses on work
processes and
assesses whether
specific functions,
products, and/or
services should be
changed or
eliminated
Systematic Change
•
long-term strategy
•
characterized by
changing the
organization’s culture
and the attitudes and
values of employees,
with the ongoing goal of
reducing costs and
enhancing quality
terminations
•
Workforce reduction: While a number of workforce reduction approaches allow for a
relatively quick reduction of the workforce, the problem is that their benefit is often
short-term, and in many instances the organization loses valuable human
resources.
•
Work redesign: This strategy, which is frequently combined with workforce
reduction, includes things such as the elimination of functions, groups, or divisions;
the reduction of bureaucracy; and the redesign of the tasks that employees perform.
Because some planning is required, this strategy takes somewhat longer to
implement and avoids the problem of the organization simply doing what it always
has done but with fewer people.
•
Systematic change: By its very nature, this strategy takes considerable time to
implement. The thrust of the strategy is to consider downsizing as an evolutionary
part of an organization’s life with the goal of continuous improvement: Employees
assume responsibility for cutting costs and searching for improved methods and
practices. Because of the human and financial commitment required for this
strategy, the impact on the organization’s bottom line is rarely immediate, and
consequently the approach is less than appealing to firms that focus on short-term
profits or budget goals (Cameron 1994, 189–11).
In the 1990s, some downsizing efforts were limited to reducing the size of the workforce;
however, many employers discovered that merely cutting back the number of people in the
organization was insufficient to achieve organizational goals. Consequently, some firms
began giving more attention to “restructuring” the workplace.
In Video 10.4, learn about the restructuring plans at Kellogg's and think about how it relates
to downsizing strategies. Should Kellogg’s restructure and divide the company into three
divisions? Is it being receptive to the demands of today’s consumer?
Video 10.4 Kellogg's to Split into Three Independent Companies [5]
10.2.2 Types of Restructuring Strategies
The three types of “restructuring” strategies are: portfolio restructuring, financial
restructuring, and organizational restructuring. These strategies are presented in Table
10.2. While portfolio and financial restructuring are important, the emphasis in this chapter
will be on organizational restructuring. It is necessary, when considering downsizing, to
distinguish an approach involving a reduction in the number of employees from one based
on a strategically-oriented organizational redesign or restructuring (Kane 2000, 26–49).
Table 10.2 Restructuring Strategies
Type of Strategy
Description of Strategy
•
changes to the organization’s business portfolio
(changes in the mix and/or percentage makeup of the
organization’s businesses, including divestures and
acquisitions)
Financial
Restructuring
•
financial changes such as reducing cash flow or
increasing levels of debt
Organizational
•
“any major reconfiguration of internal administrative
Portfolio
Restructuring
Restructuring
structure that is associated with an intentional
management change program" (McKinley and Scherer,
2000)
10.3 Why Do Organizations Downsize?
There are several reasons organizations decide to downsize the workforce. Some of the
factors most commonly mentioned are as follows:
•
Declining profit
•
Business downturn or increased pressure from competitors
•
Merging with another organization, resulting in duplication of efforts
•
Introduction of new technology/robotics/digitization
•
The need to reduce operating costs
•
The desire to decrease levels of management
•
Getting rid of employee “deadwood”
•
Major disruption, such as COVID-19
Simply put, many organizations engage in downsizing because managers perceive that
cutting people will result in reduced costs (costs being more predictable than future
revenues) and improved financial performance. In addition, labour costs are often seen as
easier to adjust relative to other expenditures (such as capital investment). Still, there is
considerable evidence that workforce reduction programs often fail to meet their
objectives, as has been observed by Pfeffer:
Layoffs don’t even reliably cut costs. When a layoff is announced, several things happen.
First, people head for the door—and it is often the best people (who haven’t been laid off)
who are the most capable of finding alternative work. Second, companies often lose
people they don’t want to lose. Managers also underestimate the extent to which layoffs
reduce morale and increase fear in the workplace (Pfeffer 2010, 12).
Some organizations drastically reduce the workforce and employ a severe reduction
strategy despite stable or increasing demand and a favourable competitive environment
(Love and Nohria 2006, 1087–1108). This development, which has been mentioned by HR
managers in personal interviews, may be due to a variety of reasons, including a decision
to follow the lead of other firms engaging in cutback management and an increasing desire
to operate in a “lean and mean” fashion. At other times, the decision to lay people off or
close a business may be unavoidable (such as the effects of COVID-19, which will be
discussed later in the chapter).
Some researchers argue that while organizations frequently resort to layoffs and
terminations during a period of decline, it is important to consider the underlying causes or
sources of the decline (Santana, Valle, and Galan 2017, 206–211). For employers
experiencing “firm-based decline” (due to factors such as financial performance,
governance issues, and HR policies and investment), a “flexibility-oriented” human
resource strategy is preferable.
However, if the decline is attributable to “industry contraction-based decline” (such as
economic, technological, legal, social, and competition changes – including a global
pandemic), a more “efficiency-oriented” human resource strategy is recommended. If an
employer is experiencing both types of decline, a “niche-oriented” human resource
strategy is desirable (Santana, Valle, and Galan 2017, 206–211).
Video 10.5 examines layoffs in the technology sector. As you review the video, think about
the reasons why organizations engage in downsizing.
Video 10.5 Layoffs in the Tech Industry [6]
10.3.1 Downsizing and the Sears Closure
Going through a downsizing can be a very painful and difficult experience. However, some
senior executives believe that reducing the workforce is just part of the job. Too often,
organizations embark on a downsizing program without careful consideration of whether
there are feasible alternatives to downsizing. Study after study reveals that many
downsizings are not well planned, frequently ignore the linkage between downsizing and
the strategic direction of the organization, and underestimate the impact of downsizing on
the organization and its human resources. Proactive organizations plan for downsizing by
careful planning. Examining the closure of the legendary retailer Sears is particularly
instructive.
In June 2017, Sears (once the largest and most successful department store in the country)
announced that it would close 59 of its 255 stores and lay off about 2,900 employees (17
percent of the workforce). In early July, the company announced that it would not pay
severance pay to laid-off workers, some of whom had worked for the company for more
than 40 years (Figure 10.2). Employees were angered even more when they heard that the
company was planning to pay 9.2 million dollars in bonuses to keep executives and staff
members employed as the company went through restructuring (Strauss 2017).
Figure 10.2 Sears' closure provides insight into managing the downsizing process. [7]
About four months later, Sears was given court approval to liquidate all of its remaining
stores in Canada. The previous 20 years at Sears were characterized by mismanagement of
online retailing, a failure to effectively position its brand, and decisions by the board of
directors aimed at treating the stores as a cash cow and failing to invest capital back into
the business. David Tawil, president of Maglan Capital stated, “It’s been neglect—massive
amounts of neglect,” and marketing executive Arthur Fleischmann reported, “They were the
original e-commerce company. They could have been Amazon, but they failed to stay
relevant in their product offering” (Strauss 2017a).
One article identified some key learning points from the Sears experience. While retention
bonuses are common during a major restructuring or company sale, the optics at Sears
were terrible and there was minimal communication to employees explaining the rationale
behind such bonuses (Dobson 2017, 1, 6). In addition, the decision to not pay severance to
employees resulted in a public relations nightmare. As one expert said, “There’s such a
disparity between the two actions. People say there is money, you’re just not choosing to
allocate it to these other people.”
Although Sears ultimately established a 500,000-dollar hardship fund, it was viewed as
crumbs on the table and in no way represented fair severance. One expert said it was like
having employees “beg for their supper,” and the amount of the fund paled in comparison
to the 70-million-dollar employee trust fund set up by Target Canada, which had been in
Canada for less than three years when it closed down. Several experts emphasized the
importance of communication during the restructuring process, and it appears that Sears
was woefully inadequate in providing clear and consistent messages to its workforce.
10.3.2 Alternatives to Downsizing
Downsizing can be a costly strategy for organizations to pursue, thus it is desirable to
investigate whether alternatives to downsizing exist. In a number of instances,
organizations discover that pursuing different alternatives to downsizing may eliminate the
need to reduce the workforce or allow for a less severe downsizing strategy. Different
approaches are summarized in HR Planning Notebook 10.3.1.
HR Planning Notebook 10.3.1: Alternative HR Strategies to Employee Cutbacks
Table 10.3 lists several alternatives available to organizations faced with the challenge of
cost cutting.
Table 10.3 Alternative Strategies to Employee Cutbacks
Short-Term Cost Adjustments
•
Hiring freeze
Medium-Term Cost Adjustments
•
Extending reductions in
salaries
•
Mandatory vacation
•
Voluntary sabbaticals
•
Reducing the workweek
•
Lending employees
•
Reducing overtime
•
Exit incentives
•
Reducing salaries
•
Short-term facility shutdowns
•
Obtaining cost-reduction ideas from
employees
Sources: Gandolfi (2008); Martin and Davis (2013, 19–27)
10.4 The Future of Work
Jobs are being dramatically altered due to several factors, such as artificial intelligence (AI)
and computerization. A number of recent reports suggest that the current view of work will
be changed markedly and that a number of occupations are at risk of being eliminated due
to technological advancements. The doomsayer perspective takes the view that AI may
lead to “technological unemployment,” particularly in certain occupations and countries,
while the optimist perspective argues that efficiency gains from AI greatly outweigh
transition costs and create new opportunities for workers with evolving skills and training
(Frank et al. 2019).
10.4.1 Artificial Intelligence and Job Loss
Figure 10.3 How will artificial intelligence and robotics change the future of work? [8]
A former senior deputy governor of the Bank of Canada, Carolyn Wilkins, asserted that
while technological progress should lead to increased productivity in countries such as
Canada, job losses and greater income inequality are also likely (Figure 10.3). According to
Wilkins, “Blaming the machines is not the way forward. Innovation is always a process of
creative destruction, with some jobs being destroyed and, over time, even more jobs being
created” (Blatchford 2017).
An often-quoted 2013 study by Oxford University researchers involved the examination of
several hundred occupations. The authors concluded that about 47 percent of total U.S.
employment is at risk of being replaced by computerization (Frey and Osborne
2013). Similarly, a 2016 report by the Brookfield Institute for Innovation + Entrepreneurship
suggested that about 42 percent of Canadian jobs are at risk of being lost due to
automation (Lamb 2016). According to the Brookfield Institute report, the five occupations
most at risk (as measured by the number of people employed) were retail salesperson,
administrative assistant, food counter attendant, cashier (Figure 10.4), and transport truck
driver. Jobs with a lower risk of disappearing include those in management, teaching,
science, technology, engineering, and math (CBC News 2016).
Figure 10.4 Scanners change the nature of work. [9]
Video 10.6 features a grocery store in Quebec with no cashiers, and the owner claims that
it isn't just because of COVID-19. The owner of Aisle 24 says that her unattended store is
not taking away any jobs. Do you agree?
Video 10.6 Aisle 24 – Cashierless Grocery Store [10]
Video 10.7 highlights why you should not be worried about robots taking your job, and HR
Notebook 10.4.1 presents several factors that have been identified as shaping the future of
work.
Video 10.7 Robots and Jobs [11]
HR Planning Notebook 10.4.1: Factors Distinguishing the Intelligence Revolution
•
The concept of a job has been fundamentally changed—traditional notions of work
are often not applicable in the world of work that is emerging.
•
Machines are learning faster than humans—machines now have the capability to
learn and upgrade their skills and capabilities.
•
New opportunities for people and machines are emerging as technologies
converge—artificial intelligence, motion sensors, and advanced cameras are being
integrated.
•
The impact of technological change will result in wide and deep disruption—for
instance, even fields such as law and medicine (which have historically been largely
unaffected by automation) are being changed dramatically.
•
A new workforce is emerging—a growing number of employees are freelancers or
consultants who are employed for a specific project and then move on to another
job with a different employer.
Source: Deloitte (2017)
10.4.2 COVID-19 and the Intelligence Revolution
There is little doubt that COVID-19 has caused an acceleration of replacing employees with
technology as employers search for ways to reduce operating costs and minimize
workplace infections. When discussing AI and the pandemic, Abnormal Security CEO Evan
Reiser stated, “We have seen two years of digital transformation in the course of the last
two months” (Cai 2020).
Robots can now clean buildings and take workers’ temperatures, there is a robot (Sally)
that makes salads, and chatbots are replacing call-centre employees. According to
economist Daniel Susskind, “This pandemic has created a very strong incentive to
automate the work of human beings. Machines don’t fall ill, they don’t need to isolate to
protect their peers, they don’t need to take time off work" (Semuels 2020).
A 2020 report by the World Economic Forum (Russo 2020) projects the following:
•
There will be a loss of 85 million jobs within five years, but the robot revolution will
create 97 million new jobs.
•
By 2025, the top skills needed will involve analytical thinking, creativity, and
flexibility.
•
The top emerging professions will relate to data and AI, cloud computing, and
content creation.
•
Eighty percent of business executives are focusing on digitizing work processes and
introducing new technology, and 50 percent of employers are speeding up
automation in some roles within their organizations.
•
The pandemic has had a disproportionate impact on low-skilled workers and points
to the need for reskilling.
•
Career pivots or making career changes to totally new jobs will become the new
normal.
According to Saadia Zahidi, “COVID-19 has accelerated the arrival of the future of work.
Accelerating automation and the fallout from the COVID-19 recession has deepened
existing inequalities across labour markets”(Russo 2020). A summary of the future of jobs
is presented in Video 10.8.
Video 10.8 The Future of Jobs [12]
In February 2021, a McKinsey Global Institute (McKinsey) report indicated that about one in
four U.S. workers (about 45 million people) would lose their current jobs as a result of
automation (Lund et al. 2021). This is higher than the McKinsey 2017 estimate of 37 million
employees, and may have been accelerated because of COVID-19 (Manyika et al. 2017).
The displacement of work by automation is affected by a number of factors, including the
cost of developing new technology, the labour savings associated with replacing people
with technology, the quality of the new technology, and the time to have significant
adoption at the workplace. The McKinsey report suggested that of the millions of workers
who may be displaced, most will not necessarily have to find a new line of work but rather
their jobs may undergo considerable change. It is estimated that only about 10 percent will
have to find totally different work (Carey 2021).
Although the demand for employees is high, the technology sector is experiencing some
job cutbacks. Hiring at Amazon and Facebook is slowing down; companies such as
Peloton, Bird (an electric scooter company), and Cameo have reduced their workforces;
and Uber is concerned about future growth. According to one investment specialist, “There
is more of a focus on growing smartly. Putting the right amount of people in the right spots
and trying to grow smartly as opposed to just aggressively” (De Vynck and Lerman 2022).
A recent Canadian study by Frenette and Morissette provides insights into the risk of job
loss. The researchers noted that advances in AI and robotics, in conjunction with the
COVID-19 pandemic, will result in greater risk of job loss or job transformation for specific
groups of workers (Frenette and Morissette 2021). They found that about 1 percent of
Canadian workers held unprotected jobs, about 13 percent were in single-protected jobs,
45 percent were in double-protected jobs, and 41 percent were in triple-protected jobs.
Triple-protected jobs are characterized by (1) having no defined end date, (2) having little
risk of being lost or transformed as a result of automation, and (3) being resilient to
pandemics. Unprotected jobs have none of these characteristics. Individuals in tripleprojected jobs were more likely to be male, highly-educated, high-wage earners, in the 35
to 54 age group, born in Canada or a long-term immigrant, have a spouse with a university
degree, and live in a major metropolitan area (Frenette and Morissette 2021).
Figure 10.5 examines automation-related job transformation based on education level.
What other information would you like to have when assessing the relationship between
automation-related job transformation and education? What should policy-makers be
doing to assist workers with a higher risk of job transformation?
Figure 10.5 Predicted Share of Workers of Automation-related Job Transformation, by
highest level of completed education (Statistics Canada 2016 Chart 4)
Figure 10.6 depicts the occupations that are at a higher risk of automation-related job
transformation. Are there any surprising findings in the graph? Why are education services
at a low risk of major job transformation?
Figure 10.6 Workers at High Risk of Automation-Related Job Transformation, by occupation
(Statistics Canada 2016 Chart 2)
Are Canadians knowledgeable about AI? A survey by Loewen and Lee-Whiting (2021) asked
Canadians about automation, AI, and COVID-19. The results suggest that Canadians are
concerned about the effects of automation and the pandemic on the future job market.
About 60 percent of Canadians indicated that they knew nothing or very little about
automation and AI, while 16 percent have a good understanding and 2 percent indicate that
they are experts. The detailed results of respondents' self-assessed understanding of
automation and AI are presented in Figure 10.7.
Figure 10.7 Self-Assessed Understanding of Automation and AI (Loewen and Lee-Whiting
2021)
While 18 percent of participants strongly agree that they have the skills to maintain their
standard of living in the current economy, 20 percent are neutral and 28 percent disagree
with the statement. Almost half of the respondents believe that AI and automation will
drive economic inequality and about 40 percent are of the opinion that the government
should punish organizations that cut their workforces due to new AI or automation
practices (Loewen and Lee-Whiting 2021).
How did companies react to the COVID-19 crisis? A Harvard Business School report
examined the behaviour of 354 large U.S. companies employing a combined more than 25
million employees (Lambert 2021). The findings indicated that organizations with more
financial flexibility and greater cash reserves were more likely to avoid deep employment
cutbacks. However, financially-strong firms with a lower commitment to employees and
weaker corporate governance were as likely to engage in layoffs as those in a weaker
financial position. Layoffs were particularly common in the restaurant and fast-food sector,
and it was anticipated this would result in challenges of recruitment and rebuilding the
workforce as demand returned, leading to the challenge of meeting consumer demand
with fewer employees (Lambert 2021).
10.4.3 The Amazon Effect
The retail sector is being revolutionized by what has become known as the “Amazon effect.”
To give an example of how jobs are changing, consider a warehouse worker at Amazon
whose previous job was to stack small bins weighing up to 11 kilograms during a 10-hour
shift. Now the worker is employed by the company to monitor several robots in the
warehouse and troubleshoot when problems arise; the objective of using robotics was to
avoid people having to perform monotonous tasks and to reduce the amount of walking
around by employees, leaving workers to do jobs that engage them mentally (Wingfield
2017).
Video 10.9 showcases a warehouse that has thousands of robots zipping around a grid
system packing groceries. The robots can process 65,000 orders per week.
Video 10.9 Grocery-Packing Robots [13]
Consider the massive changes within the hospitality sector. For instance, a restaurant in
Nova Scotia recently hired “Bella” to join their team. Bella is a robot that delivers
customers’ orders to their tables. According to one employee, “I love her because it saves a
lot of work for us and more efficiency.” The robot follows sensors in order to find its way
around the restaurant (Kaiser 2022). Similarly, an Arby’s recently installed an artificiallyintelligent voice assistant that takes customer orders at the drive-through and passes them
on to the cooks. A member of the family who owns the restaurant commented that “it
doesn’t call in sick. It doesn’t get corona [the COVID-19 virus]. And the reliability of it is
great” (O’Brien 2021).
Read HR Planning Notebook 10.4.2 to learn how technology is transforming the hotel
industry.
HR Planning Notebook 10.4.2: Technology in the Hotel Sector
Although the hotel sector has been adopting labour-saving technology over the past
number of years, the pandemic has increased the use of technology. Robots have been
introduced to assist in the preparation and service of food, allow guests to use kiosks to
check in on their own, deliver food or supplies to guests’ rooms (delivery bots), and clean
both common areas and rooms. Labour is the most expensive cost for hotels, and although
disinfecting bots can cost in excess of 100,000 dollars, other robots can be hired on a
subscription basis. One company charges 1,000 dollars a month, which works out to about
2 dollars and 75 cents an hour, and the robot can work for 12 hours on a fully-charged
battery.
Still, the use of robots has not been problem-free. Some robots failed to live up to
performance expectations, and droids have exposed some customers to hackers. Not all
customers are comfortable with robots, although others have appreciated the contactless
environment when robots cleaned the rooms.
According to one hotel manager, “There was not much human capital available during the
pandemic. So, the robots were a way to supplement the lack of talent available in the
labour market.” Although hotel managers frequently claim that the robots are there to
supplement the work of the staff, unions and employees are concerned about job loss.
These robots are transforming the hotel sector. Robots that deliver luggage, provide room
service, and guide guests around are featured in Video 10.10.
Video 10.10 Robots in the Hotel Industry [14]
Source: Diller (2022)
10.5 The Downsizing Decision
10.5.1 Inplacement and Outplacement Issues
In examining the downsizing decision, it is necessary to consider both inplacement and
outplacement issues (Latack 1990, 109–139). Inplacement refers to a career management
approach aimed at reabsorbing excess or inappropriately placed workers into a
restructured organization, while outplacement focuses on the provision of a program of
counselling and job search assistance for workers who have been terminated.
We are also seeing innovative approaches to assisting workers who have suffered job loss,
but these are not without challenges. As a result of the phasing out of coal-fired electricity,
the NDP government in Alberta launched the Coal Workforce Transition Fund to assist laidoff workers. A major objective of the fund was to supplement employment insurance and
assist employees in the coal industry as they transition into new jobs or retirement. The
province’s department of labour also provides additional support for laid-off workers in the
form of training, education, and career counselling (Clancy 2017). The Coal Workforce
Transition Fund became operational in 2018. However, there have been some concerns
about the availability of long-term funding, the risk of investing in other unsustainable
industries at the expense of climate-friendly job initiatives, and delays in consulting with
employees and communities. There is also considerable apprehension about the impact of
COVID-19 and the dramatic increase in the price and demand for oil in 2022 (World
Resources Institute 2021).
10.5.2 Some Ethical Considerations
Consider the experience of one female manager who was laid off due to downsizing:
I actually did the rounds and said goodbye to a few key people. And the thing that was really
upsetting was that I went in to see senior people such as the chief executive officer; I went
into his office and he just came out and saw me talking to his secretary and said, “What is
wrong?” Because he saw my face. And I said, “I’ve just been retrenched.” And he was
shocked because he didn’t know, because it was his second in command who handled
operational issues. So he basically said, “I’m really sorry” . . . but you know, “See you later.
There’s nothing I can do” (Vickers 2009, 412).
Is it unethical to downsize? Downsizing is, in most circumstances, perfectly legal. Of
course, there may be contractual provisions (such as terms of a collective agreement) and
legal restrictions (such as human rights legislation, labour or employment standards, or
the common law of wrongful dismissal) that restrict how an employer may engage in
downsizing. For example, labour standards codes often require that an employer provide a
specified period of notice before engaging in a mass layoff.
Assuming that a downsizing is legal, can it still be unethical? There is evidence that
downsizing may have negative impacts on laid-off employees, survivor employees, and the
downsizers. When confronted with the need to make decisions about downsizing,
managers may use economic, accounting, and ethically based rationales (Arce and Lee
2011, 49–60).
A number of downsizings may infringe on principles of organizational justice. Perceptions
of fairness and equity play a key role in understanding how victims and survivors of a
downsizing react to the experience. Three types of organizational justice warrant
consideration (Armstrong-Stassen 1993, 334–343):
1. Distributive: This is concerned with the fairness of the downsizing decision. For
example, responses from employees may include feelings of guilt after seeing coworkers lose their jobs, support for the downsizing decision as necessary for the
firm, or feelings of unfairness and concern that further layoffs may put their own job
in jeopardy.
2. Procedural: This is concerned with the procedures (or “decision rules”) used to
determine which employees will leave or remain with the organization.
3. Interactional: This is concerned with the type of interpersonal treatment
employees receive during the implementation of the downsizing decision.
Interactional justice can be broken down into (1) interpersonal justice, or the degree
to which people are treated with dignity and respect by those involved in
implementing the downsizing, and (2) informational justice, which focuses on the
explanations used with regard to the downsizing decision.
Consider the response of one disgruntled employee who was laid off from a chemical
company and sabotaged the computer system, resulting in more than 20 million dollars in
damages. In a letter to the company president, they wrote:
I have been loyal to the company in good and bad times for 30 years. I was expecting
a member of top management to come down from his ivory tower to face us with the
layoff announcement, rather than sending the kitchen supervisor with guards to
escort us off the premises like criminals. You will pay for your senseless behaviour
(Molinsky and Margolis 2006, 146).
HR Planning Today 10.5.1 addresses the issue of fairness and commitment to the
organization after downsizing. Communication during a downsizing may be mismanaged,
and managers may use and abuse information as a source of power. For instance,
organizations may choose to conceal information from employees (such as failing to
inform employees about impending job loss) or distort information concerning the financial
status of the business (Rosenblatt and Schaeffer 2000, 132–50).
HR Planning Today 10.5.1: Fairness and Commitment after Downsizing
What is the relationship between downsizing and affective organizational commitment (the
level of emotional attachment to, identification with, and involvement in the organization)?
Do the perceptions of survivors and victims differ? The results of a recent study indicate
that
•
fairness is correlated with higher organizational commitment when considering the
responses of both survivors and victims of downsizing;
•
procedural fairness is more important than distributive fairness for downsizing
survivors;
•
the impact of fairness is greater in countries with a more individualistic culture
(rather than a collectivistic culture); and
•
fairness is more important if the downsizing was undertaken in order to maximize
profits rather than out of economic necessity.
Source: Van Dierendonck and Jacobs (2010, 96–109)
What about ethical decisions by employees facing job insecurity? One study found that job
insecurity may lead to emotional exhaustion, which impairs the ability of some employees
to self-regulate, resulting in unethical behaviour. While highly adaptable employees
frequently have the skills and abilities to cope with job insecurity, employees who face
challenges adapting to major change are more likely to engage in unethical behaviour at
the workplace (Lawrence and Kacmar 2017, 39–70).
Downsizing may be considered a breach of the psychological contract that exists between
an employer and an employee (i.e., an individual worker’s perception of the agreement they
have with the employer). In addition, downsizing may also involve the violation of social
contracts; an organization is a member of different local communities, and a failure to
adhere to certain values and mores (an ethical floor or basic standard of ethics) would
result in the organization being considered a “poor” corporate citizen.
One employee, after being informed by his boss that his employment with the company
had been terminated, stated the following:
As I say, the relationship between my boss and myself was pretty intense, and I think (the
meeting) ends up with something like him saying, “Well Ben, this is very unfortunate. I do
wish you all the very best in your future and hope everything will work out,” something to
that effect. And I responded with, “Look Chris, let’s not mess around. You hate my guts, and
I can assure you that I hate yours” (Vickers 2009, 410).
One researcher observed that the COVID-19 pandemic has led to a wave of layoffs around
the world and placed increased attention on “responsible restructuring” – the actions,
practices, and strategies adopted by organizations to ameliorate the negative effects of
redundancy (McLachlan 2022). These are described below:
1. Regulatory: Compliance with national, provincial, and municipal legislation is
important. There is also the critical issue of whether an organization goes beyond
the minimum standards of relevant legislation.
2. Procedural: Issues may include the adoption of internal processes and procedures
that are perceived as fair, making responsible downsizing visible to employees, the
timing of the downsizing, and justice (distributive, procedural, informational, and
interactional).
3. Communication: An example would be the involvement of human resource
professionals and management, employees, and their representatives in the
downsizing process and the role of effective communication.
4. Employment: Downsizing is frequently associated with a feeling of “loss” and with
“scarring” effects. Providing employment-related support (such as retraining and
job-transition assistance) and opportunities for internal redeployment are among
best practices.
10.5.3 Planning for Downsizing
Assuming the organization has decided to embark on a downsizing strategy, planning is
essential. Some key issues include the following:
•
Determining how many people will lose their jobs.
•
Determining who will be let go. For example, will the decision be made on the basis
of seniority, performance, or potential?
•
Determining how the reduction will be carried out. For example, to what extent will
the organization use attrition, early retirement or voluntary severance programs, and
layoffs or termination? The approaches to workforce reduction vary in terms of the
degree of protection to employees and the time it takes to implement them.
•
Determining the legal consequences. For example, organizations often ignore or are
unaware of legal requirements when downsizing the workforce. Some areas of law
to consider include the law of wrongful dismissal (and constructive dismissal),
employment standards legislation, trade union law, existing collective agreement
provisions, and human rights legislation.
•
Designing current and future work plans. This issue represents a key challenge for
the organization and is frequently neglected.
•
Implementing the decision. Implementation includes elements such as the
communication of the termination decision, the timing of the decision, security
issues, severance payments, outplacement counselling, and communications with
remaining employees.
•
Performing follow-up evaluation and assessment of the downsizing efforts.
Although this step is critical, it is often ignored in many organizations (Amundson et
al. 2004, 256–271).
In Video 10.11, Thomas Koulopolous describes some of the correct and incorrect
approaches to workforce reduction.
Video 10.11 Workforce Reduction Suggestions [15]
10.5.4 Adjusting to Job Loss
You’re expendable. We don’t want to fire you but we will if we have to. Competition is brutal,
so we must redesign the way we work to do more with less. Sorry, that’s just the way it is.
And one more thing—you’re invaluable. . . . We’re depending on you to be innovative, risktaking, and committed to our goals (O'Reilly 1994, 44–52).
What does this sentiment mean for employees? In many organizations, we have moved
away from the expectation of lifetime employment (Cappelli 1995, 563–602). Rather,
workers should prepare for a “multiorganizational career” and recognize that it is highly
unlikely that they will remain with the same organization throughout their working lives.
Downsizing may also involve the violation of social contracts; an organization is a member
of different local communities, and a failure to adhere to certain values and mores would
result in the organization being considered a “poor” corporate citizen.
Figure 10.8 Job loss can be extremely stressful. [16]
Workers who have lost their job frequently experience tremendous pain (Figure 10.8). As
well, job loss can be very difficult for family members. Furthermore, many downsized
employees are very bitter and angry with their former employer. Employees experiencing
job loss may suffer emotionally (for instance, feeling anger, sadness, helplessness, and a
variety of other emotions), socially (impacting personal, professional, and social
relationships), financially (loss of income and benefits, inability to find employment, a
lower-paying new job), physically (for example, high blood pressure, gastrointestinal
issues, lack of motivation to exercise), and mentally (increased stress, mental health
problems) (Mujtaba and Senathip 2020).
As indicated in HR Planning Today 10.5.2, losing a job may have benefits for some
employees.
HR Planning Today 10.5.2: Can Losing a Job Be a Good Thing?
While job loss is not typically considered a favourable experience, a study of 30 men and
women who lost their job and were using an outplacement firm revealed that losing a job
may have some positive aspects. Some of the benefits resulting from job loss identified by
participants were as follows:
•
The opportunity to reflect on their careers and a chance to think about what they
really want to do
•
A chance to get out of a job they didn’t like: a number of the participants, upon
reflection, concluded they weren’t satisfied with what they had been doing
•
More time for family and a better work–life balance
Although some participants felt considerable stress and anxiety associated with job loss,
others felt relief. As shown in Video 10.12, more positive views tended to occur as time
passed. Still, individuals with young families felt considerable pressure to get back into the
workforce.
Video 10.12 Job Loss and New Beginnings [17]
Source: Klie (2007, 1–2)
Still, for most employees, job loss is a traumatic experience. Consider the responses from
two victims of downsizing (Parris and Vickers 2010, 350):
•
Victim 1: "Money was limited. I felt very un— . . . I didn’t like to go out in the day. I
remember my wife said to me, 'Why don’t you go and mow the lawn?' And I didn’t
want to go out there because, it’s interesting, you just felt that people are watching
you. And you have this feeling of, 'He can’t even support his family. Look at him. He
is failing.'"
•
Victim 2: "I was out of work for seven months. I was trying very hard to get a job. That
did have a dramatic effect on me and my family. My kids were going to private
school. I’d paid a whole year up front. But it affected them. My kids said at one point,
and this really cut me up, they said, 'Daddy, if we haven’t got any money, we don’t
have to have Christmas this year.' And that really upset me."
If a single organization acting alone decides to engage in workforce cutbacks, the
employees have the option of seeking alternative employment; however, in an economy in
which several firms are downsizing (such as we saw during the COVID-19 pandemic),
frustrated employees have few alternative employment opportunities (Cappelli 1997, 563–
602). Still, firms that have not treated employees well may encounter difficulties in
attracting and keeping quality employees when the demand for workers is high. A poll of
almost 7,000 employees indicated that 84 percent would search for a new job if they heard
that their company was planning layoffs (Immen 2008).
Video 10.13 discusses some of the issues surrounding job loss and how it affects
individuals.
Video 10.13 Job Loss Consequences [18]
A number of organizational interventions and practices have been identified as helping
previously employed workers adjust to job loss and secure new employment (Feldman and
Leana 1994, 239–260). They include the following:
•
Advance notification of layoffs, which gives employees time to deal with the reality
of job loss and seek future employment
•
Severance pay and extended benefits, which provide an economic safety net
•
Education and retraining programs, which give individuals time to acquire
marketable skills
•
Outplacement assistance, to inform employees of new job opportunities and
improve their ability to “market” themselves
•
Clear, direct, and empathetic announcement of layoff decisions
•
Consideration of HR planning practices that represent alternatives to large-scale
layoffs
Still, organizations don’t always manage the process properly, as one employee observed:
You know, they [former employees] were told that their positions were being eliminated,
they were given counselling—financial and counselling about their package . . . but then
they were actually ushered right out the door and I think that is despicable. People that had
been with the company for 20 years that had been very good employees are made to think
that they’ve done something wrong . . . very, very demeaning (Amundson et al. 2004, 256271).
Prior to the pandemic, there was clear evidence that many individuals were staying out of
the workforce. The labour force participation rate, which was around 66 percent, was the
lowest it had been in the past decade and there was particular concern about the threat of
unstable jobs (Trading Economics 2019). According to McMaster University professor
Wayne Lewchuk, “It’s a brutal world out there if you’re a firm. . . . So we’ve seen a
movement of firms to protect a core of employees and surrounding that with a periphery of
less permanent employees or tasks that are contracted out” (Grant 2014, B6-B7). HR
Planning Today 10.5.3 summarizes research examining employment status and suicide
risk.
HR Planning Today 10.5.3: Examining Employment Status and Suicide Risk
Is losing a job associated with a greater risk of suicide? What about being unemployed for a
long period of time? Researchers examined these questions using U.S. panel data over a
10-year period. Their major findings include the following:
•
Recent job loss (unemployed less than five weeks) was not associated with a
difference in suicide risk in men versus women.
•
A narrower measure of recent job loss (based on mass-layoff events) was positively
associated with the suicide rate for both men and women. The authors estimate one
additional suicide for every 4,200 men who became unemployed as part of a mass
layoff and one additional suicide for every 7,100 women who were part of a mass
layoff.
•
Suicide risk increases for both men and women who experience long periods of
unemployment.
Source: Classen and Dunn (2012, 338–350)
In addition to several major downsizings, COVID-19 was also associated with large
numbers of employees resigning from their jobs (what has been called the "Great
Resignation"). According to the Human Resources Professional Association (HRPA), the
Great Resignation is far from over in Canada (Utomi 2022). By the end of 2021, there were
more than 900,000 job vacancies (80 percent more than in 2019). Also, a 2022 Microsoft
Work Index study reported that about 52 percent of Generation Zs and millennials
indicated that they were considering leaving or switching their current jobs in the next year,
particularly if their current job restricted them from enjoying their life (Microsoft 2022). The
HRPA asserts that the Great Resignation is only the symptom, with the cause being what
they call the “Great Prioritization” (associated with individuals placing a higher priority on
personal well-being, health [physical, mental, and social], family, and other interests and
hobbies). Several employees are considering the meaning of work and its role in their lives
(Utomi 2022).
10.6 The “Survivors” of Downsizing
While we see media accounts of people rebounding from downsizing and starting a new life
for themselves, the reality is that for many individuals, the pain of being downsized is very
severe. The impact on family life, career plans, and personal esteem are devastating and
the social costs can be enormous.
10.6.1 Impact on the "Survivors"
What about the survivors of a downsizing? How do employees who remain with an
organization react? Here is a description of a typical response, also known as survivor
syndrome (Lee 1992, 17–23):
The initial anger and pain are often followed by fear and cynicism. Stress, bred of
uncertainty and the necessity of doing more with less, skyrockets. Trust in the company
and its management plummets. Employees who remain spend their days juggling more
work and avoiding anything that approaches risk taking or innovation.
Surviving a downsizing can be traumatic, and there is growing evidence that perceptions of
job insecurity (even in the absence of a downsizing) may be associated with negative
consequences for employees and employers (refer to HR Planning Today 10.6.1). Job
insecurity has been defined as “an individual’s expectations about continuity in a job
situation” or “overall concern about the future existence of a job” (Davy, Kinicki, and
Scheck 1997, 323–349; Rosenblatt and Ruvio 1996, 587–605). In other words, even
employees in organizations that have not downsized the workforce may have perceptions
of job insecurity, which has been related to impaired well-being, increased stress, higher
levels of burnout, mental distress, and lower work and supervisor satisfaction (Sverke and
Hellgren 2002, 23–42; Jiang and Probst 2006).
HR Planning Today 10.6.1: Organizational Downsizing and Alcohol Use
It is readily acknowledged that surviving a downsizing is associated with a stressful work
environment. However, are survivors more likely to use alcohol? Michael Frone explored
this issue using data from almost 2,300 U.S. workers. Among the most important findings
were the following:
•
Being exposed to a downsizing was associated with increased frequency of drinking
alcohol, number of drinks consumed per drinking occasion, and both binge drinking
and drinking to the point of intoxication.
•
Excessive alcohol use following a downsizing was significantly associated with
younger downsizing survivors (40 years of age or younger), but the relationship
between downsizing and alcohol use was not statistically significant for workers
over 40 years of age.
Source: Frone (2018, 107–113)
10.6.2 Survivor Reactions
There is considerable evidence that downsizing may produce a number of dysfunctional
behaviours among the employees who remain with the organization. Some of these
impacts are discussed below (Mone 1994, 281–298):
•
Negative attitudes and behaviours: In a number of downsizings, employees who
retain their jobs report increased job insecurity, fear, stress, and burnout. They may
also experience lower self-confidence and self-esteem, reduced job satisfaction,
and lower commitment to the organization. Not surprisingly, these factors may lead
to increased turnover, absenteeism, and lateness.
•
Reduced performance capabilities: There is growing evidence that it is not
necessarily the poor performers who leave the downsized organization. Of
particular concern is the fear that the best employees will leave, because quality
workers are more attractive to other firms. This result undermines the HR activities
of the organization.
•
Lower organizational productivity: Negative employee attitudes and behaviour, in
conjunction with lower performance capabilities, may destroy or markedly harm
team activities and result in lower productivity (Figure 10.9).
Figure 10.9 Employees who keep their jobs after a downsizing may report increased stress
and burnout. [19]
Another study examined various forms of downsizing and the perceptions of almost 14,000
employees. The major findings included the following:
•
Survivors of layoffs reported lower perceived organizational performance, lower job
security, reduced attachment to the organization, and a higher intention to quit their
job compared with employees who had not experienced downsizing. Survivors of
offshoring (moving work to foreign entities outside the company) perceived that their
employer’s organizational performance was lower, manager fairness was lower, and
commitment to the organization was not as high compared to respondents who had
not been downsized. However, survivors of outsourcing (moving work to outside
entities such as contractors or consultants, resulting in job loss) did not differ
significantly in their attitudes relative to employees who had not been downsized
(Maertz, Wiley, and Campion 2010, 275–285).
In another study, of almost 2,300 U.S. workers, researchers compared workers who were
exposed to a downsizing (“survivors”) with those who were not. About 52 percent of the
participants were male and the average age was just over 40 years (Frone and Blais 2020).
They found that downsizing was associated with nine of twelve work conditions (higher
levels of work demands, role conflict, supervisor aggression, dysfunctional leadership, job
insecurity, employment insecurity, lower levels of friendship formation, distributive justice,
and promotional opportunities) as well as all six categories of employee outcomes
(inability to detach from work; energetic resource depletion, such as mental, physical and
emotional fatigue; health [physical and mental]; negative affect [depression, anxiety, and
anger]; positive effect, for instance, happiness and confidence; and work attitudes,
including job satisfaction, commitment to the organization, and intention to quit their job).
The authors point to the need to address work conditions as a way of reducing the impact
of downsizing on survivors and employing both top-down and bottom-up approaches to
minimize layoffs and lessen their effects on the employees remaining after downsizing.
10.6.3 Impact on the “Downsizers”
Although there has been a fair bit of research on the survivors of downsizing, what about
the individuals who carry out the downsizing and actually terminate members of the
workforce? In one study, detailed interviews were conducted with 10 managers responsible
for implementing the downsizing. The results showed that participating in the downsizing
process was very difficult for a number of managers. Of particular note was the experience
of social and organizational isolation, a decline in personal health and well-being, and an
increase in family-related problems (Wright and Barling 1998, 339–355). Another study
revealed that having to carry out the downsizing (being the “executioner”) is emotionally
taxing and that the downsizers develop mechanisms to distance themselves emotionally,
physically, and cognitively from the task (Figure 10.10). Experienced downsizers were more
able to develop coping mechanisms and an emotional numbness to the task (Gandolfi
2009, 185–200). Downsizers may begin speaking in less personal terms to describe their
job—for instance, a workforce reduction may be described as a realignment or
“revectoring.”
Figure 10.10 Downsizers frequently experience high levels of stress and anxiety, as well as
significant internal conflict. [20]
While the involvement of some downsizers may be restricted to behind-the-scenes
administrative tasks (such as blocking employee access to computers), others have a
more direct role, including identifying the people to be laid off, carrying out the actual
layoffs, and dealing with employees immediately after the layoff decision:
People stare at you funny, they won’t even say “Hello” to you. You know, they think you
made the personal decision yourself. … What was my name for it? A grim reaper (Clair and
Dufresne 2004, 1608).
There is often extreme emotion on the part of the downsizer:
A manager I dealt with here, broke down and cried. Cried during the training sessions. Got
too emotional herself. Cried during the delivery of the message. I felt that the person did not
display the managerial or directorial responsibilities that they have to the company. Got too
emotional and too personal (Molinksy and Margolis 2006, 145–159).
Stevens and Hannibal (2021) assert that the individuals responsible for the downsizing
(sometimes known as the executioners or smiling assassins) frequently experience several
negative outcomes associated with their work. They refer to such individuals as
“redundancy envoys” and reconceptualize them as quasi-dirty workers whose work may be
morally tainted.
Their study revealed that the redundancy envoys suffered from high levels of stress and
anxiety; considerable internal conflict, as they had strong feelings of empathy for the
victims of downsizing but felt that managing the layoffs was part of their job; doubt and
insecurity about whether they were doing the right thing; and guilt associated with
destroying the workforce and dismissing employees who were not responsible for the
organization’s problems. One envoy stated that “you feel guilty, even when you are making
the lowest performers redundant.” They point to the need for sufficient training and support
for redundancy envoys (Stevens and Hannibal 2021, 1–33).
10.7 Financial Performance and Downsizing
Do organizations that have reduced their workforces perform better than other firms? This
is an important question. Organizations engaging in downsizing anticipate that their
financial performance will thereby improve.
How does the stock market react to downsizing announcements? While some analysts
suggest that downsizing will improve the value of a firm’s stock, investors generally respond
negatively to the announcement of a layoff, particularly if the reduction is due to financial
factors or involves a large-scale, permanent cutback of employees.
One study indicated that downsizing had a negative impact on stock market returns, and
this was even more pronounced for larger downsizings. However, the negative effects
associated with downsizing were reduced or eliminated when the firm adopted a strategy
in which specific units and functions were targeted for layoffs; targeted cuts allow the firm
to retain the most valuable human resources, whereas across-the-board cutbacks result in
the loss of quality employees. If engaging in a large downsizing is inevitable, firms with
disengagement incentives/strategies (incentives to leave) are viewed more favourably by
the stock market relative to firms without such incentives/strategies (Nixon et al. 2004,
1121–1129). Another study revealed that the decision to use a press release to announce a
downsizing was associated with more negative reactions by investors (Negre et al. 2017,
239–257).
Video 10.14 highlights the layoffs at Netflix. What will be the impact on those laid off and
the survivors of the downsizing?
Video 10.14 Layoffs at Netflix [21]
When we look at financial performance outcomes, academic research does not paint a
very clear picture; some studies suggest downsizing is linked to increased profitability
while others indicate it is linked to poorer financial performance. Why the conflicting
results? In examining the various studies, it is difficult to make comparisons, because
authors don’t use similar measures of performance, and each defines downsizing
somewhat differently. In addition, the research tends to look at workforce reduction
behaviour without considering the overall downsizing strategy.
However, there is some U.S. evidence supporting the position that improved return on
assets and common stock might be related, at least in part, to the downsizing strategy
employed by the organization (Cascio, Young, and Morris 1997, 1175–1189). Firms
following a “pure employment” downsizing (a workforce cutback of at least 5 percent but
little change in plant and equipment expenditure) did not outperform other firms in their
industry. However, “asset downsizers” (firms that cut at least 5 percent of the workforce
accompanied by a decline of at least 5 percent in expenditures on plant and equipment)
generated higher returns relative to industry competitors.
In addition, a study of Fortune 500 companies revealed that firms that had downsized their
workforce had substantially poorer financial results up to two years later. However, these
results began to dissipate by the third year. The findings were particularly negative for
employers reducing 10 percent or more of the workforce. In addition, there was modest
evidence that the use of more frequent (ongoing) layoffs was associated with poorer
performance (DeMeuse et al. 2004, 155–177).
It appears that the link between organizational performance and downsizing is complex,
and that the likelihood of a successful downsizing might be associated with a number of
factors surrounding the downsizing. A study of large firms over an 18-year period indicated
that downsizing is more likely to be successful (as measured by better financial
performance) when firms have higher levels of slack (excess resources, which can include
inventory, working capital, and people), the downsizing is broadly based (i.e., the focus not
only is on reducing the number of people but also involves organizational redesign), and
the approach to downsizing is proactive (planned out rather than in response to declining
performance) (Love and Nohria 2006, 1087–1108). In addition, financial performance may
also vary depending on whether the rationale for the downsizing was excuse-based or
justification-based (Chhinzer and Currie 2014, 1474–1490; Brauer and Laamanen 2014,
1311–1333.). These findings support a number of suggestions provided earlier in the
chapter (Datta et al. 2010, 281–348).
Researchers completed a meta-analysis examining the relationship between downsizing
and financial performance. They found that within-firm and accounting performance
declined in the period immediately following the downsizing, and post-downsizing
performance outcomes typically were negative. In addition, despite evidence to the
contrary, managers generally perceived that downsizing is effective and will improve
financial performance (House and Steel 2022).
10.8 Downsizing Consequences and Strategies
10.8.1 Consequences of Downsizing
Many downsizing efforts fall well short of meeting organizational objectives, and are carried
out with little strategic planning or consideration of the costs to the individuals and the
employer (Cascio 2002). More often, job cuts represent a short-term reaction to a much
more complex problem. While senior executives often focus on financial issues during a
reorganization, the benefits of restructuring frequently fail to transpire if HR issues are not
carefully thought out and resolved appropriately.
Despite the guilt associated with permanently reducing the workforce, a growing number of
firms are willing to downsize and are discovering that workforce reduction can lead to many
unwanted consequences (Tomasko 1990). Some of these consequences include the high
human costs, psychological trauma experienced by both those let go and the survivors,
reduced employee commitment, lower performance among employees due to job
insecurity, greater attention by management to the downsizing process while ignoring
customer and client needs, a shift from innovation to protection of one’s turf, lower morale,
potential litigation by employees who believe that they are victims of discrimination, and a
loss of valuable employees (refer to HR Planning Today 10.8.1).
One study examined “serial downsizers” (i.e., firms that had downsized the workforce both
when the study began and five years later). The serial downsizers had the poorest scores
when considering changes in employee satisfaction (e.g., poorer morale, quality of work
life, commitment to the organization). While the “late downsizers” (those organizations that
had downsized only recently) also had negative scores on the employee satisfaction
measures, the “early downsizers” did not significantly differ from those employers that did
not downsize throughout the period of the study. In other words, it appears that the
negative people consequences associated with the early downsizing had dissipated over
the five-year period (Wagar and Rondeau 2002; Gilson, Hurd, and Wagar 2004, 1056–1068).
In Video 10.15, learn how the stock market reacted to the job cuts at Netflix. When playing
the video, consider the effect of ongoing rounds of layoffs on Netflix performance? What
are the effects of downsizing on financial and stock market performance?
Video 10.15 Market Reaction to Downsizing at Netflix [22]
HR Planning Today 10.8.1: Are Employees in a Downsized Organization More Likely to
Quit?
What are the implications for employee quit behaviour if an organization downsizes? Does
investment in human resource management practices moderate the quit rate? These
questions were addressed in a study by Trevor and Nyberg. Among their major findings
were the following:
•
Downsizing was associated with a higher quit rate. This finding has implications for
an organization that may lose more people than desired, because the downsizing in
turn impacts the quit rate. As well, higher performers may be among those who
decide to voluntarily leave the organization.
•
Higher quits are frequently associated with negative consequences, compounding
the negative effect of the downsizing. The authors found that if just 1 percent of the
workforce is downsized, post-downsizing voluntary turnover rates increase by about
31 percent.
•
If downsizing is unavoidable, adopting practices such as job embeddedness (e.g.,
flextime, on-site child care, and defined benefit plans) and procedural justice prior
to the downsizing may reduce the consequences of downsizing resulting from
higher voluntary turnover, induce the least valuable employees to leave, and
encourage the most valuable employees to stay.
Source: Trevor and Nyberg (2008, 259–276)
Reputation for Corporate Social Performance (RCSP)
One issue that has received little attention is the effect of downsizing on the
organization’s reputation for corporate social performance (RCSP). Reputation for
corporate social performance can be defined as “the firm’s reputation for principles,
processes and outcomes related to the social impact of the firm’s operations”
(Zyglidopoulos 2004, 13). An organization’s RCSP is one of the most important intangible
assets of a business and an important source of competitive advantage. In addition, it may
be critical to attracting and retaining quality employees. Although considered an
acceptable business practice, there is evidence that downsizing has a negative impact on
an organization’s RCSP and is even more pronounced for organizations that had high
financial performance prior to the downsizing (Zyglidopoulos 2004, 13; Bergström and
Diedrich 2011, 897–919).
In a systematic review of articles examining downsizing and corporate social responsibility
(CSR) over a 30-year period, researchers noted that half of the articles addressed how
companies acted in a socially responsible manner by assisting employees coping with job
loss and helping them transition to new job opportunities, and about 30 percent of the
research examined CSR and business strategy (with firms often employing a number of
management strategies and tactics) (Ahlstrand and Rydell 2017, 53–78). They concluded
that the reasons firms use a CSR approach were not clearly identified and that the
outcomes from using CSR often neglected key social and economic effects.
In 2019, General Motors closed its Oshawa, Ontario, plant as part of a restructuring plan to
focus more on electric and autonomous vehicles. Video 10.16 describes the social and
economic effects of the restructuring. Do companies such as General Motors have a social
responsibility to maintain jobs in Canada?
Video 10.16 General Motors: The Effects of Restructuring [23]
Downsizing and Employee Safety
Another issue beginning to attract attention is the relationship between downsizing and
employee safety. The research evidence suggests that downsizing creates job insecurity,
which is strongly associated with low levels of job satisfaction. Low job satisfaction, in
turn, is related to safety motivation (the incentive to work safely) and safety knowledge (an
understanding of safe operating procedures). When safety motivation is low, employees
are less likely to engage in “safety compliance,” that is, comply with safety procedures and
carry out their work in a safe manner (Figure 10.11). Finally, lower levels of safety
compliance are associated with more workplace accidents. It is suggested that during a
downsizing, employees concerned with keeping their jobs view productivity as more
important than safety. However, in downsizings in which employees perceived the safety
climate as positive and the organization viewed safety as very important, the negative
outcomes associated with job insecurity were not seen (Probst 2004, 63–80).
Figure 10.11 Safety meetings are an important part of workplace safety. [24]
Research suggests that employee perceptions of job insecurity are associated with both a
greater likelihood of experiencing an accident and a reduced probability of reporting an
accident to company personnel (Probst, Barbaranelli, and Petitta 2013, 383–402). In
addition, the prevalence of workplace injuries has been linked with both job insecurity and
a hostile work environment (Farnacio et al. 2017, 164–171).
The pandemic has seen both large-scale layoffs and huge numbers of employees quitting
their jobs. What are the implications for workplace safety? According to Predictive Safety
(2022), the implications include the following:
•
A shortage of workers means that remaining employees may have to work faster and
some may take short cuts or not follow safety practices due to work overload.
•
When older and more experienced employees leave, their replacements may not
have the skill or knowledge to complete their jobs in a safe and timely manner.
•
Reliance on the use of overtime results in employee fatigue and increases the
likelihood of injuries and accidents.
•
With fewer supervisors, there may be lapses in monitoring safety performance,
fewer workplace inspections, and less time to train and provide feedback to both
new and existing employees.
In addition to workplace safety, there is some evidence that employees who are laid off are
more likely to engage in criminal behaviour (refer to HR Planning Today 10.8.2).
HR Planning Today 10.8.2: Examining Employment Status and Criminal Behaviour
Are victims of downsizing more likely to engage in criminal behaviour? A large study of
Norwegian men between the ages of 18 and 40 revealed that men who lost their jobs due to
a mass layoff were more likely to commit more crime. Additional findings included:
•
Criminal behaviour increased by around 20 percent in the year of the layoff and then
gradually dissipated.
•
Criminal offenses were more likely to occur during the week rather than on the
weekend, with the highest rate of criminal behaviour on Monday and the lowest on
Sunday.
•
Property crimes were most common, but rates for violent and alcohol/drug-related
crimes were also higher for men losing their jobs (compared with men who were
employed).
•
Rates for violent and alcohol/drug-related crimes were also higher in the year before
the men lost their jobs.
What factors are associated with these findings? The authors point to two important
variables. First is time availability, or the notion that men who have lost their jobs have
more free time on their hands. Second are psychological factors such as mental distress
and issues with self-control. It may be that while layoffs are associated with increased
crime, the threat or fear of losing one’s job also leads to increased stress and anxiety (and
helps explain the higher rates of violent and alcohol/drug-related crime just before the
actual job displacement).
Source: Rege et al. (2019, 101761)
10.8.2 Downsizing Strategies
If an organization is not “lean and mean” enough, downsizing might be an appropriate
strategic response. However, cutting the number of people in an organization is not a quick
fix; prior to embarking on any workforce reduction effort, firms should carefully consider
the consequences. Considerable care and planning must go into the decision, and the
reasons for the reduction must be effectively communicated to employees. In addition,
managers frequently have little experience or training with regard to downsizing and
restructuring.
From a strategic perspective, an important decision involves answering questions such as:
Should we downsize? When should we do it? How should we do it? The focus should be on
rightsizing, which involves establishing a shared vision of the organization and a clearly
stated strategy supported by management, understood by employees, and involving a
sense of “ownership” by members of the firm (Hitt et al. 1994, 18–32; LaMarsh 2009, 7–16).
In Video 10.17, Tesla's CEO Elon Musk announces that the company will lay off 10 percent
of its workforce. Musk advised Tesla employees to look for work elsewhere if they did not
want to return to the office. What do you think of Musk telling employees that if they didn't
want to return to the office, they should look for work elsewhere?
Video 10.17 Downsizing at Tesla [25]
It is critical that the HR department play a very active role in the early stages of formulating
a downsizing strategy. There is evidence that negative outcomes associated with
downsizing might be mitigated by increased communication and employee participation,
and systematic analysis (in advance) of tasks and personnel requirements (Cameron 1994,
189–211; Chadwick, Hunter, and Walston 2004, 405–427). In addition, senior management
has to take an aggressive, visible, and interactive role in formulating the downsizing
strategy. However, the identification, development, and implementation procedures
should involve the employees. In many instances, the identification of inefficiencies and
areas where improvements are possible is best left to employees, who typically are in a
better position to make such judgments.
Strategic Downsizing
Why do so many workforce reduction programs fail to meet expectations? Many
organizations engaging in downsizing had no policies or programs to address problems
associated with cutting human resources, and several organizations failed to anticipate the
dramatic impacts workforce reduction has on the work environment, employees,
customers, and clients. Furthermore, a number of downsizing efforts were not integrated
as part of the organization’s overall strategic plan (Galagan 2010).
An effective downsizing depends on comprehensive planning for change; proper
communication of the plan; credibility of the organization with employees, customers,
suppliers, and other relevant participants; and consideration and compassion both for
employees who are terminated and for those remaining (Kammeyer-Mueller, Liao, and
Arvey 2001, 269–329). While managing layoffs is extremely difficult, the challenges are
magnified during the pandemic; a recent Harvard Business Review article made several
suggestions (Knight 2020):
1. Gather information: This includes when and how to notify employees about layoffs,
provide the information on an individual basis, what the notice/conversation will
involve, and the answers to questions employees are likely to have.
2. Understand your limitations: One idea is to ask each employee if there is a time
when you can have 15 minutes of their focused attention.
3. Set the right tone: A particular challenge is if the conversation will need to be held
remotely. Using a video link may be more effective than a phone call, as it allows for
more personal contact and expression of care.
4. Be human and direct: The message should be clear, concise, and unequivocal and
provide the time period when the individual’s employment will end. Also address
that the global pandemic is the reason for the layoff (not employee performance).
5. Offer assistance: But don’t promise more than you can deliver. Outline available
resources and opportunities for government assistance but don’t promise that the
employee’s job is safe once the pandemic ends.
6. Be transparent: Remaining employees (survivors) are also going to have questions
and concerns about their continued employment. One option is an ongoing “ask me
anything” forum.
7. Vent and focus on your own well-being: Laying off employees during a pandemic
is a huge responsibility; you also need to pay attention to your own physical and
mental health.
One study compared the effect of the three downsizing strategies (workforce reduction,
organizational redesign, and systematic change) on two performance outcome measures
(cost reduction and quality improvement) (Mishra and Mishra 1994, 261–279). It found that
the workforce reduction strategy was negatively related to organizational performance,
while the organizational redesign and systematic change strategies were associated with
improved performance. Moreover, mutual trust between employees and senior
management plays an important role in the success of organizational redesign and
systematic change strategies.
Effective Approaches to Downsizing
Researchers developed a list of six best practices in downsizing firms (Cameron, Freeman,
and Mishra 1991, 57–73):
•
Downsizing should be initiated from the top but requires hands-on involvement
from all employees.
•
Workforce reduction must be selective in application and long-term in emphasis.
•
Special attention should be paid both to those who lose their jobs and to the
survivors who remain with the organization.
•
Decision makers should identify precisely where redundancies, excess costs, and
inefficiencies exist and attack those specific areas.
•
Downsizing should result in the formation of small, semi-autonomous organizations
within the broader organization.
•
Downsizing must be a proactive strategy focused on increasing performance.
According to HRM professor Nita Chhinzer, the keys to effectively managing the layoff
process include the following:
•
Do it quickly and efficiently – spreading layoffs over a longer period of time leads to
increased job insecurity, a possible decrease in productivity, and losing good
employees who decide they want to leave.
•
Make sure that supervisors have clear and detailed information about the layoffs
and what their responsibilities are related to the downsizing.
•
Have all information packages and forms prepared well before the layoff. Laid-off
employees are going to have questions relating to such issues as when does the
layoff occur, what is the severance package, when are company property items
(such as laptops and security cards) due to be returned, and is there a possibility of
recall.
•
Explain the rationale for the layoff and be prepared to address employee concerns
regarding why they were selected for the layoff and other workers were not.
•
Don’t neglect the survivors who remain with the organization.
•
Be aware of the risks of voluntary layoffs. High-quality employees are typically the
most marketable, and the organization may suffer if they leave and poorer quality
workers remain.
Although the importance of communication is widely acknowledged, it appears that
communication during downsizing is particularly difficult because of the negative effect on
the informal communication networks in an organization. It is important to (1) attend to
rumours, (2) provide survivors with available information on the downsizing, (3) ensure that
survivors are aware of the new organizational goals, (4) make expectations clear, (5) tell
survivors that they are valued, and (6) allow time for grieving (Dunlap 1994, 89–113).
10.8.3 HR Role in Downsizing and Restructuring
Human resources experts have a considerable role to play in downsizing and restructuring.
Some considerations are as follows:
•
Advising on restructuring the organization (work groups, teams, departments, and
so on) to maximize productivity and retain quality performers
•
Developing skill inventories and planning charts to evaluate the impact of a
downsizing on HR needs and projected capabilities
•
Communicating the downsizing decision effectively
•
Evaluating the downsizing program after completion
o
This includes an assessment of who left the organization and who remains.
Some key issues include job design and redesign, worker adjustment to
change, the need for employee counselling, organizational communication,
and a review of the appropriateness of HRM policies and programs (training,
compensation and benefits, orientation of employees into the “new”
organization, etc.) (Mone 1994, 281–298).
The ongoing relationship between humans and robots is examined in HR Planning Today
10.8.3.
HR Planning Today 10.8.3: Human and Robot Relations
Robots have been around for more than 60 years and there are more than three million
robots in factories around the world. The use of robots is expected to accelerate, due in
part to the Great Resignation and the shortage of employees in several sectors of the
economy, and to the fact that robots are increasingly becoming able to complete complex
tasks.
According to Henrik Christensen, director of the Contextual Robotics Institute at the
University of California, San Diego, “Some people fear for their jobs and ask how they will
earn a living. However, the jobs that robots undertake are usually dull, repetitive and
strenuous – and post-COVID, such jobs are getting harder to fill. It is less a desire to reduce
labour costs that is driving automation than the sheer difficulty of recruiting workers.
Robots can create jobs by making businesses more efficient, allowing firms to expand.”
Source: The Economist (2022)
10.9 Labour Relations Issues
Practitioners in unionized organizations often face additional challenges when
participating in the restructuring process (Figure 10.12). In any downsizing involving a
union, it is critical that management representatives read the collective agreement. While
this should go without saying, in many instances practitioners do not follow this advice.
The collective agreement often outlines the procedures to be followed in the event of a
reduction of bargaining unit employees. Of particular relevance are clauses addressing
notice-period requirements in the event of a layoff and provisions dealing with seniority.
Figure 10.12 Are robots workplace partners or adversaries? [26]
There has been a movement in labour relations toward greater co-operation between
labour and management and the emergence of new employment relationships. However,
changes in managerial attitudes and behaviours are necessary if co-operation between
labour and management will succeed; unfortunately, many downsizing programs have
destroyed positive labour-relations programs. One study of workforce reduction in the
unionized environment revealed that labour–management climate was lower (the quality of
the labour–management relationship was more adversarial) for those bargaining units that
experienced a reduction of the workforce. Of note was that this result was consistent when
considering both employer respondents and union officials (Wagar 2001, 851–862).
A second study explored the adoption of high-performance work practices in unionized
environments and the role of employment security. The results indicated that the use of
high-performance work practices declined as union representation increased. However,
this finding was affected by the employer’s commitment to job security. Among companies
with a low commitment to job security, the use of high-performance work practices
declined markedly as the percentage of the workforce represented by a union increased.
However, where commitment to job security was high, the use of high-performance work
practices rose modestly as unionization increased. In other words, providing employment
security appears to temper the effect of unionization on the adoption of high-performance
work practices (Liu et al. 2009, 109–127).
As you will learn in Video 10.18, union leaders are very committed to protecting the jobs of
their members.
Video 10.18 Union Leader Reacts to Layoffs [27]
Should unions participate in management-initiated restructuring efforts? One case study
documented the experiences of three union locals involved in the process of restructuring.
Each union local negotiated with the employer over the issue of workplace restructuring,
but the substance of the bargaining as well as the level of involvement by the union and its
members varied noticeably. However, it is possible to identify two distinct union
responses. The interventionist response was characterized by early involvement in the
restructuring process and the involvement of a broad cross-section of the union
membership in the development and implementation of the new form of work organization.
On the other hand, the pragmatic response was one in which the union relied on the
employer to make workplace changes and then negotiated with management over the
impact of such changes. While this response is not surprising, the study results indicate
that it may not be the optimal response—in redesigning the work, management has limited
information about the work itself and workplace norms, the change does not proceed
through a series of steps in which union input is sought, and the lack of involvement in the
process leads to lower commitment to change on the part of the union and its members
(Frost 2001, 539–564).
It remains to be seen how true co-operation can exist when the job security of employees is
threatened. By way of example, union leaders frequently report that joint committees and
employee involvement programs are designed to get workers to make suggestions that
increase productivity at the cost of job security. Although a positive labour climate is often
associated with favourable organizational outcomes, achieving such a climate is very
difficult, and good relationships have been destroyed when firms embarked on a program
of cutting jobs.
Video 10.19 describes the impact of the General Motors closure on workers and the
community.
Video 10.19 General Motors Oshawa Plant Closure [28]
Summary
L.O. 10.1 HR planning plays an important role in the development and implementation of
an effective downsizing strategy. The “job for life” approach has been radically changed in
the past decade, resulting in a number of new challenges for both employees and
employers. It does not appear that the downsizing phenomenon is over, and consequently
HR professionals must have a solid understanding of how to manage the downsizing
process.
L.O. 10.2 Workforce reduction, work redesign, and systematic change are all examples of
downsizing strategies. Many employers discovered that simply reducing the number of
employees was insufficient to achieve organizational goals. Portfolio restructuring,
financial restructuring, and organizational restructuring are the three types of
"restructuring." Organizational restructuring is defined as any major reconfiguration of
internal administrative structure associated with an intentional management change
program and is the main focus of this chapter.
L.O. 10.3 Organizations decide to downsize for several reasons, such as declining profits,
the introduction of labour-saving technology, or merging with another employer. During
COVID-19, widespread layoffs were commonplace. However, there are several short-term
and long-term alternatives to downsizing, ranging from hiring freezes and reducing overtime
to exit incentives.
L.O. 10.4 Artificial intelligence and rapid technological changes are having dramatic effects
on the nature of work. Some jobs will be eliminated or radically changed while new work
opportunities will emerge. Ongoing training and reskilling will be part of every employee's
career. Automation-related job transformation is negatively associated with education but
positively related to jobs that are highly routine (such as clerical work). The rate of change
in the nature of work was accelerated as a result of the COVID-19 pandemic.
L.O. 10.5 When embarking on a downsizing, careful planning is essential. Be sure and
consider both inplacement and outplacement issues. Ethical and organizational justice
(distributive, procedural, and interactional) concerns should be part of the decision. Losing
one's job often results in extreme pain to the displaced worker – financial hardship,
physical health issues, and mental health issues are common. Considering people
consequences of downsizing should be part of any decision to reduce the size of the
workforce.
L.O. 10.6 It is important to not forget about the employees who remain with the
organization (the "survivors") after the downsizing is completed. Reducing the workforce
can result in a negative impact on the survivors, who often report experiencing guilt, fear
and stress, reduced commitment to the organization, and an intention to quit and explore
employment opportunities elsewhere. Downsizing can also be very hard on those who
have to carry out the decision (the "downsizers") and manage the process.
L.O. 10.7 Many downsizings fail to meet senior management's financial expectations and
are frequently associated with lower financial performance. There is some evidence that
the downsizing strategy may have an impact on financial outcomes. The relationship
between downsizing and financial performance is complex. Managers, on the other hand,
generally see downsizing as an effective strategy for improving financial performance.
L.O. 10.8 Many downsizings have fallen far short of achieving the goals that senior
management expected. In a number of organizations, downsizing was followed by lower
morale, greater conflict, reduced employee commitment, and poorer financial
performance. Moreover, many downsizings were carried out without considering the
strategic objectives of the organization, and many employers failed to assess how
downsizing would affect its victims, surviving employees, the organization, customers, or
society.
L.O. 10.9 Unionized employers contemplating downsizing must follow the collective
agreement and are advised to discuss their plans with union leadership. Reducing the
workforce is associated with poorer labour–management climate. In addition,
organizations adopting bundles of high-performance work practices and engaging in
labour–management co-operation efforts must recognize the importance of job security to
the success of such initiatives.
Glossary
Distributive justice The fairness of the downsizing decision.
Downsizing strategy Strategy to improve an organization’s efficiency by reducing the
workforce, redesigning the work, or changing the systems of the organization.
Downsizing Activities undertaken to improve organizational efficiency, productivity, and/or
competitiveness that affect the size of the firm’s workforce, its costs, and its work
processes.
Financial restructuring Financial changes such as reducing cash flow or increasing levels
of debt.
Inplacement Reabsorbing excess or inappropriately placed workers into a restructured
organization.
Interactional justice The interpersonal treatment employees receive during the
implementation of the downsizing decision.
Organizational restructuring Any major reconfiguration of internal administrative
structure that is associated with an intentional management change program.
Outplacement Providing a program of counselling and job search assistance for workers
who have been terminated.
Portfolio restructuring Changes to the organization’s business portfolio (changes in the
mix and/or percentage makeup of the organization’s businesses, including divestures and
acquisitions).
Procedural justice Procedures or rules used to determine which employees will be
downsized.
Psychological contract An unwritten commitment between employers and their
employees that historically guaranteed job security and rewards for loyal service.
Survivors Employees remaining with an organization after a downsizing.
Systematic change A long-term strategy that changes the organization’s culture and
attitudes, and employees’ values, with the goals of reducing costs and enhancing quality.
Work redesign A medium-term strategy in which organizations focus on work processes
and assess whether specific functions, products, and/or services should be eliminated.
Workforce reduction A short-term strategy to cut the number of employees through
attrition, early retirement or voluntary severance packages, layoffs, or terminations.
References
Ahlstrand, R., and A. Rydell. 2017. "Corporate Social Responsibility in Connection with
Business Closures and Downsizing: A Literature Review." Contemporary Management
Research 13: 53–78. DOI: 10.7903/cmr.17291.
Amundson, N., W. Borgen, S. Jordan, and A. Erlebach. 2004. "Survivors of Downsizing:
Helpful and Hindering Experiences." The Career Development Quarterly Review 52: 256–
271, 260. https://doi.org/10.1002/j.2161-0045.2004.tb00647.x.
Arce, D., and S. Xin Lee. 2011. "Profits, Layoffs and Priorities." Journal of Business
Ethics 101: 49–60. https://doi.org/10.1007/s10551-010-0707-7.
Armstrong-Stassen, M. 1993. "Survivors' Reactions to a Workforce Reduction: A
Comparison of Blue-Collar Workers and Their Supervisors." Canadian Journal of
Administrative Sciences 10: 334–343. https://psycnet.apa.org/doi/10.1037/10725245.12.2.117.
Bergström, O., and A. Diedrich. 2011. "Exercising Social Responsibility in Downsizing:
Enrolling and Mobilizing Actors in a Swedish High-Tech Company." Organization Studies 32:
897–919. https://doi.org/10.1177/0170840611407019.
Blatchford, A. 2017. "Bank of Canada Warns Automation Will Lead to Job Losses." The
Globe and Mail, April 18.
Brauer, M. and T. Laamanen. 2014. "Workforce Downsizing and Firm Performance: An
Organizational Routine Perspective." Journal of Management Studies 51: 1311–1333.
https://doi.org/10.1111/joms.12074.
Cai, Kenrick. 2020. “AI 50 Founders Predict What Artificial Intelligence Will Look Like after
Covid-19.” Forbes. Accessed September 6, 2022.
https://www.forbes.com/sites/kenrickcai/2020/07/10/ai-50-founders-post-coronaviruspredictions/?sh=3eda63d32ccc.
Cameron, K., S. Freeman, and A. Mishra. 1991. "Best Practices in White Collar Downsizing:
Managing Contradictions,. Academy of Management Executive 5: 57–73.
https://doi.org/10.5465/ame.1991.4274469.
Cameron, K. 1994. "Strategies for Successful Organizational Downsizing." Human
Resource Management 33: 189-211. https://doi.org/10.1002/hrm.3930330204.
Cappelli, P. 1995. "Rethinking Employment." British Journal of Industrial Relations 33: 563–
602.
Carey, Kevin. 2021. “Do Not Be Alarmed by Wild Predictions of Robots Taking Everyone's
Jobs.” Slate Magazine. Accessed September 6, 2022.
https://slate.com/technology/2021/03/job-loss-automation-robots-predictions.html.
Cascio, W., C. Young, and J. Morris. 1997. "Financial Consequences of EmploymentChange Decisions in Major U.S. Corporations." Academy of Management Journal 40: 1175–
1189. https://doi.org/10.5465/256931.
Cascio, W. 2002. Responsible Restructuring: Creative and Responsible Alternatives to
Layoffs. San Francisco, CA: Berrett-Koehler.
CBC News. 2016. “42% of Canadian Jobs at High Risk of Being Affected by Automation,
New Study Suggests.” CBC. June 15, 2016. Accessed September 15, 2022.
https://www.cbc.ca/news/business/automation-job-brookfield-1.3636253.
Chadwick, C., L. Hunter, and S. Walston. 2004. "Effects of Downsizing Practices on the Performance of Hospitals." Strategic Management Journal 25: 405–427.
https://www.jstor.org/stable/20142133.
Chhinzer, N. and E. Currie. 2014. "Assessing Longitudinal Relationships Between Financial
Performance and Downsizing." Management Decision 52: 1474–1490.
http://dx.doi.org/10.1108/MD-05-2014-0280.
Clair, J., and R. Dufresne. 2004. "Playing the Grim Reaper: How Employees Experience
Carrying Out a Downsizing." Human Relations 57 (12): 1608.
http://dx.doi.org/10.1177/0018726704049991.
Clancy, C. 2017. "NDP Launches Fund to Support Unemployed Coal Workers." Edmonton
Journal. Accessed September 6, 2022. http://edmontonjournal.com/news/politics/ndplaunches-fund-to-support-to-unemployed-coal-workers.
Classen, T. and R. Dunn. 2012. “The Effect of Job Loss and Unemployment Duration on
Suicide Risk in the United States: A New Look Using Mass-Layoffs and Unemployment
Duration,” Health Economics 21 (March): 338–350. https://doi.org/10.1002%2Fhec.1719.
Datta, D., J. Guthrie, D. Basuil, and A. Pandey. 2010. "Causes and Effects of Employee
Downsizing: A Review and Synthesis." Journal of Management 36: 281–348.
https://journals.sagepub.com/doi/10.1177/0149206309346735#con4.
Davy, J., A. Kinicki, and C. Scheck. 1997. "A Test of Job Security's Direct and Mediated
Effects on Withdrawal Cognitions." Journal of Organizational Behavior 18: 323–349.
https://www.jstor.org/stable/3100180.
Deloitte. 2017. “The Intelligence Revolution - Future-Proofing Canada’s Workforce.”
Accessed September 6, 2022.
https://www2.deloitte.com/content/dam/Deloitte/ca/Documents/human-capital/ca-ENHC-The-Intelligence-Revolution-FINAL-AODA.pdf.
DeMeuse, K., T. Bergmann, P. Vanderheiden, and C. Roraff. 2004. "New Evidence Regarding
Organizational Downsizing and a Firm's Financial Analysis." Journal of Management
Inquiry 16: 155-177. https://www.jstor.org/stable/40604452.
De Vynck , G. and R. Lerman. 2022. “Silicon Valley Braces for Tech Pullback after a Decade
of Decadence.” The Washington Post. MSN. Accessed September 6, 2022.
https://www.msn.com/en-us/news/us/silicon-valley-braces-for-tech-pullback-after-adecade-of-decadence/ar-AAYlhX9.
Diller, N. 2022. “Hotels Have Gone to the Robots.” The Washington Post. Accessed August
26, 2022. https://www.washingtonpost.com/travel/2022/06/07/robots-hotel-jobs-laborshortage/.
Dobson, S. 2017. "Sears Provides Lessons for HR." Canadian HR Reporter (September): 1,
6.
Dunlap, J. 1994. "Surviving Layoffs: A Qualitative Study of Factors Affecting Retained
Employees after Downsizing." Performance Improvement Quarterly 7: 89–113.
https://doi.org/10.1111/j.1937-8327.1994.tb00652.x.
Farnacio, Y., M. Pratt, E. Marshall, and J. Graber. 2017. "Are Workplace Psychosocial
Factors Associated with Work-Related Injury in the US Workplace?" Journal of
Occupational and Environmental Medicine. 59: 164–171.
Feldman, D., and C. Leana. 1994. "Better Practices in Managing Layoff." Human Resource
Management 33: 239–260. https://doi.org/10.1002/hrm.3930330206.
Financial Times. 2022. “City of London/Brexit: Job Market Is Buoyant but Relocations
Impend.” Financial Times. Accessed September 6, 2022.
https://www.ft.com/content/f2466bab-d376-4d3d-a753-aa9526174917.
Frank, M. R., D. Autor, J. E. Bessen, E. Brynjolfsson, M. Cebrian, D. J. Deming, M. Feldman,
et al. 2019. “Toward Understanding the Impact of Artificial Intelligence on
Labor.” Proceedings of the National Academy of Sciences 116 (14): 6531–6539.
https://doi.org/10.1073/pnas.1900949116.
Frenette, M. and R. Morissette. 2021. "Job Security in the Age of Artificial Intelligence and
Potential Pandemics." Statistics Canada. Accessed September 6, 2022.
https://www150.statcan.gc.ca/n1/pub/36-28-0001/2021006/article/00004-eng.htm.
Frey, C., and M. Osborne. 2013. The Future of Employment. Oxford Martin Programme on
Technology and Employment.
Frone, M. 2018. “Organizational Downsizing and Alcohol Use: A National Study of U.S.
Workers During the Great Recession.” Addictive Behaviors 77 (February): 107–113.
http://dx.doi.org/10.1016/j.addbeh.2017.09.016.
Frost, A. 2001. "Reconceptualizing Local Union Responses to Workplace Restructuring in
North America." British Journal of Industrial Relations 39: 539–564.
https://doi.org/10.1111/1467-8543.00214.
Galagan, P. 2010. “The Biggest Losers: The Perils of Extreme Downsizing | ATD.” TD
Magazine. November 20, 2010. https://www.td.org/magazines/td-magazine/the-biggestlosers-the-perils-of-extreme-downsizing.
Gandolfi, F. 2009. "Executing Downsizing: The Experience of Executioners." Contemporary
Management Research 5: 185-200. https://doi.org/10.7903/cmr.1197
Gandolfi, F. 2008. “HR Strategies That Can Take the Sting Out of Downsizing-Related
Layoffs.” Ivey Business Journal Online. Accessed September 6, 2022.
https://iveybusinessjournal.com/publication/hr-strategies-that-can-take-the-sting-out-ofdownsizing-related-layoffs/.
Gilson, C., F. Hurd, and T. Wagar. 2004. "Creating a Concession Climate: The Case of the
Serial Downsizers." International Journal of Human Resource Management 15: 1056–1068.
https://doi.org/10.1080/09585190410001677313.
Goodyear, S. 2021. “It Was Callous Says Man Laid Off with 900 Employees on Zoom Call.”
CBC. Accessed September 6, 2022. https://www.cbc.ca/radio/asithappens/as-it-happensthe-tuesday-edition-1.6276506/it-was-callous-says-man-laid-off-with-900-employees-onzoom-call-1.6276956.
Gordon, S. 2014. "Your Job Is As Safe As It Has Ever Been. Probably
Safer." Maclean's. Accessed September 6, 2022.
https://www.macleans.ca/economy/business/your-job-is-as-safe-as-it-has-ever-beenprobably-safer/.
Grant, T. 2014. "The 15-Hour Work Week: Canada's Part-Time Problem." The Globe and
Mail (October): B6, B7. https://www.theglobeandmail.com/report-on-business/the-15hour-workweek-canadas-part-time-problem/article20926986/.
Gunther, C. 2022. “Tesla Announces Humanoid Robot and Layoffs. Coincidence?”
ReviewGeek. Accessed September 6, 2022. https://www.reviewgeek.com/120001/teslaannounces-humanoid-robot-and-layoffs-coincidence/.
Hitt, M., B. Keats, H. Harback, and R. Nixon. 1994. "Rightsizing: Building and Maintaining
Strategic Leadership and Long-Term Competitiveness." Organizational Dynamics 23: 18–
32. https://doi.org/10.1016/0090-2616(94)90066-3.
House, A , and P. Steel. 2022. “Downsizing and Financial Performance: A Multi-Level and
Longitudinal Meta-Analysis.” Academy of Management Proceedings 2022 (1).
https://doi.org/10.5465/ambpp.2022.10166abstract.
Immen, W. 2008. "When Flames of Fear Lick at Your Feet." The Globe and Mail (May): C1.
Jiang, J., and T. Probst. 2016. “The Moderating Effect of Trust in Management on
Consequences of Job Insecurity.” Economic and Industrial Democracy 40 (2): 409–433.
https://doi.org/10.1177/0143831x16652945.
Kaiser, L. 2022. “'It Saves a Lot of Work': Robot Server Delivers Food, Smiles at Chinese
Restaurant in N.S.” CTV News. Accessed September 6, 2022. https://atlantic.ctvnews.ca/itsaves-a-lot-of-work-robot-server-delivers-food-smiles-at-chinese-restaurant-in-n-s1.5966416.
Kammeyer-Mueller, J., H. Liao, and R. Arvey. 2001. "Downsizing and Organizational
Performance: A Review of the Literature from a Stakeholder Perspective." In Research in
Personnel and Human Resource Management, edited by G. Ferris. Amsterdam: JAI Press:
269–329.
Kane, B. 2000. "Downsizing, TQM, Re-engineering, Learning Organizations and HRM
Strategy." Asia Pacific Journal of Human Resources 38: 26–49.
https://doi.org/10.1177/103841110003800103.
Klie, S. 2007. “The Upside of Job Loss.” Canadian HR Reporter (October): 1–2.
Knight, R. 2020. “How to Manage Coronavirus Layoffs with Compassion.” Harvard Business
Review. Accessed September 6, 2022. https://hbr.org/2020/04/how-to-managecoronavirus-layoffs-with-compassion.
LaMarsh, J. 2009. "How Companies Reduce the Downside of Downsizing." Global Business
and Organizational Excellence (November/December): 7–16.
https://doi.org/10.1002/joe.20294.
Lamb, C. 2016. The Talented Robot-The Impact of Automation on Canada's Workforce. The
Brookfield Institute for Innovation. https://doi.org/10.32920/ryerson.14638341.v1.
Lambert, L. 2021. “Keep or Cut Workers? How Companies Reacted to the COVID-19 Crisis.”
Harvard Business School, Working Knowledge. Accessed September 6, 2022.
https://hbswk.hbs.edu/item/keep-or-cut-workers-how-companies-reacted-to-the-covid19-crisis.
Latack, J. 1990. "Organizational Restructuring and Career Management: From
Outplacement and Survival to Implacement." In Research in Personnel and Human
Resources Management, edited by G. Ferris and K. Rowland. Greenwich, CT: JAI30 Press:
109–139.
Lawrence, E., and K Kacmar. 2017. "Exploring the Impact of Job Insecurity on Employees'
Un-ethical Behaviour. Business Ethics Quarterly 27: 39–70. doi:10.1017/beq.2016.58.
Lee, C. 1992. "After the Cuts." Training 29: 17–23.
Liu, W., J. Guthrie, P. Flood, and S. MacCurtain. 2009. "Unions and the Adoption of High
Performance Work Systems: Does Employment Security Play a Role?" Industrial and Labor
Relations Review 63: 109–127. https://www.jstor.org/stable/25594546.
Loewen, P. and B. Lee-Whiting. 2021. “Automation, AI and COVID-19.” Public Policy Forum.
Accessed September 6, 2022. https://ppforum.ca/publications/automation-ai-and-covid19/.
Love, E. and N. Nohria. 2006. "Reducing Slack: The Performance Consequences of Large
Industrial Firms, 1977-93." Strategic Management Journal 26: 1087–1108.
https://doi.org/10.1002/smj.487.
Lund, S. A. Madgavkar, J. Manyika, S. Smit, K. Ellingrud, and O. Robinson. 2021. “The Future
of Work after COVID-19 | McKinsey.” McKinsey & Company. February 18, 2021.
https://www.mckinsey.com/featured-insights/future-of-work/the-future-of-work-aftercovid-19.
Maclean's. 2020. “COVID-19: Canada Layoff Tracker.” Accessed September 6, 2022.
https://www.macleans.ca/economy/covid-19-canada-layoff-tracker/.
Maertz, C., J. Wiley, C. LeRouge, and M. Campion. 2010. "Downsizing Effects on Survivors:
Layoffs, Offshoring and Outsourcing." Industrial Relations 49: 275–285.
http://dx.doi.org/10.1111/j.1468-232X.2009.00599.x.
Martin, W. and A. Davis. 2013. “Alternatives to Downsizing: An Organizational Innovation
Approach. International Journal of Business and Social Research (July): 19–27.
https://doi.org/10.18533/ijbsr.v3i7.243.
Manyika, J. S. Lund, M. Chui, J. Bughin, J. Woetzel, P. Batra, R.Ko, and S.Sanghvi. 2017. “Jobs
Lost, Jobs Gained: What the Future of Work Will Mean for Jobs, Skills, and Wages.”
McKinsey & Company. November 28, 2017. https://www.mckinsey.com/featuredinsights/future-of-work/jobs-lost-jobs-gained-what-the-future-of-work-will-mean-for-jobsskills-and-wages.
McKinley, W., and A. Scherer. 2000. "Some Unanticipated Consequences of Organizational
Restructuring." Academy of Management Review 25: 735–752.
https://doi.org/10.2307/259202.
McLachlan, Christopher J. 2021. “Developing a Framework for Responsible Downsizing
through Best Fit: The Importance of Regulatory, Procedural, Communication and
Employment Responsibilities.” The International Journal of Human Resource
Management 33, no. 1 (July): 16–44. https://doi.org/10.1080/09585192.2021.1958248.
Microsoft. 2022. “Work Trend Index: Microsoft's Latest Research on the Ways We Work.”
Accessed August 3, 2022. https://www.microsoft.com/en-us/worklab/work-trend-index.
Mishra, A., and K. Mishra. 1994. "The Role of Mutual Trust in Effective Downsizing
Strategies." Human Resource Management 33: 261–279.
https://doi.org/10.1002/hrm.3930330207.
Molinsky, A., and J. Margolis. 2006. "The Emotional Tightrope of Downsizing: Hidden
Challenges for Leaders and their Organizations." Organizational Dynamics 35: 145–159,
146. https://doi.org/10.1016/j.orgdyn.2006.03.005.
Mone, M. 1994. "Relationships between Self-Concepts, Aspirations, Emotional Responses,
and Intent to Leave a Downsizing Organization." Human Resource Management 33: 281–
298. https://doi.org/10.1002/hrm.3930330208.
Moore, M. 1996. Downsize This. New York, NY: Harper Perennial.
Mujtaba, B. G. and T. Senathip. 2020. “Layoffs and Downsizing Implications for the
Leadership Role of Human Resources.” Journal of Service Science and Management 13,
no. 2 (April): 209–228. https://doi.org/10.4236/jssm.2020.132014.
Negre, E., M. Verdier, C. Cho, and D. Patten. 2017. "Disclosure Strategies and Investor
Reactions to Downsizing Announcements: A Legitimacy Perspective." Journal of
Accounting and Public Policy 36: 239–257.
https://doi.org/10.1016/j.jaccpubpol.2017.03.003.
Nixon, R., M. Hitt, H. Lee, and E. Jeong. 2004. "Market Reactions to Announcements of
Corporate Downsizing Actions and Implementation Strategies." Strategic Management
Journal 25: 1121–1129. https://doi.org/10.1002/smj.423.
O'Reilly, B. 1994. "The New Deal: What Companies and Employees Owe One
Another." Fortune (June): 44–52.
O’Brien, M., and P. Wiseman. 2021. “Do We Need Humans for That Job? Automation
Booms after COVID-19.” CTV News. Accessed September 6, 2022.
https://apnews.com/article/technology-business-health-coronavirus-pandemicd935b29f631f1ae36e964d23881f77bd.
Parris, M., and M. Vickers. 2010. "'Look at Him. . . . He's Failing': Male Executives'
Experiences of Redundancy." Employee Responsibilities and Rights Journal 22: 350.
https://doi.org/10.1007/s10672-010-9156-9.
Pfeffer, J. 2010. "Lay off the Layoffs." Newsweek (February): 12.
PredictiveSafety. 2022. “Unexpected Consequences of the Labor Shortage Safety-Sensitive
Industries Need to Know.” Accessed September 6, 2022.
https://predictivesafety.com/consequences-labor-shortage-safety-sensitive-industriesneed-to-know/.
Probst, T., C. Barbaranelli, and L. Petitta. 2013. "The Relationship between Job Insecurity
and Accident Under-reporting: A Test in Two Countries. Work and Stress 27: 383–402.
https://doi.org/10.1080/02678373.2013.850756.
Probst, T. 2004. "Job Insecurity: Exploring a New Threat to Employee Safety." In The
Psychology of Workplace Safety, edited by J. Barling and M. Frone, 63–80.
https://psycnet.apa.org/doi/10.1037/10662-004.
Rege, M., T. Skardhamar, K. Telle, and M. Votruba. 2019. “Job Displacement and Crime:
Evidence from Norwegian Register Data.” Labour Economics 61: 101761.
https://doi.org/10.1016/j.labeco.2019.101761.
Rosenblatt, Z., and A. Ruvio. 1996. "A Test of a Multidimensional Model of Job Insecurity:
The Case of Israeli Teachers." Journal of Organizational Behavior 17: 587–605.
https://doi.org/10.1002/(SICI)1099-1379(199612)17:1+%3C587::AID-JOB825%3E3.0.CO;2S.
Rosenblatt, Z., and Z. Schaeffer. 2000. "Ethical Problems in Downsizing." In The
Organization in Crisis: Downsizing, Restructuring and Privatization, edited by R. Burke and
C. Cooper. 132–150. Malden, MA: Blackwell.
Russo, A. 2022. “Recession and Automation Changes Our Future of Work, but There Are
Jobs Coming, Report Says.” World Economic Forum. Accessed August 15, 2022.
https://www.weforum.org/press/2020/10/recession-and-automation-changes-our-futureof-work-but-there-are-jobs-coming-report-says-52c5162fce/.
Ryan, L., and K. Macky. 1998. “Downsizing Organizations: Uses, Outcomes and
Strategies.” Asia Pacific Journal of Human Resources 36: 29–45.
https://doi.org/10.1177/103841119803600204.
Sagan, A. 2017. "Retail Jobs Being Put at Risk, Experts Say." Chronicle Herald (October): B4.
Santana, M., R. Valle, and J. Galan. 2017. "Turnaround Strategies for Companies in Crisis:
Watch Out the Causes of Decline Before Firing People." Business Research Quarterly 20:
206–211. https://doi.org/10.1016/j.brq.2017.01.003.
Semuels, A. 2020. “Millions of Americans Have Lost Jobs Faster in the Pandemic – And
Robots and AI Are Replacing Them Faster Than Ever.” Time. Accessed September 6, 2022.
https://time.com/5876604/machines-jobs-coronavirus/.
Sheaffer, Z., A. Carmeli, M. Steiner-Revivo, and S. Zionit. 2009. "Downsizing Strategies and
Organizational Performance." Management Decision 47: 951.
10.1108/00251740910966677.
Statistics Canada. 2016. “Automation and Job Transformation in Canada: Who’s at Risk?”
Accessed August 15,
2022.https://www150.statcan.gc.ca/n1/pub/11f0019m/11f0019m2020011-eng.htm#n18refa.
Stevens, M., and C. Hannibal. 2021. “The Smiling Assassin?: Reconceptualising
Redundancy Envoys as Quasi-Dirty Workers.” The International Journal of Human Resource
Management: 1–33. https://doi.org/10.1080/09585192.2021.1976246.
Strauss, M. 2017. “Battle Brewing as Sears Canada Confirms No Severance Pay for
Staff.” The Globe and Mail, June 23, 2017. Accessed September 14, 2022.
https://www.theglobeandmail.com/report-on-business/no-severance-pay-for-searscanada-staff/article35454179/.
Strauss, M. 2017a. “Who Killed Sears Canada? The inside Story of Its Downfall.” The Globe
and Mail, October 20, 2017. Accessed September 14, 2022.
https://www.theglobeandmail.com/report-on-business/why-sears-canadafailed/article36677039/.
Sverke, M., and J. Hellgren. 2002. "The Nature of Job Insecurity: Understanding
Employment Uncertainty on the Brink of a New Millennium." Applied Psychology: An
International Review 51: 23–42. https://doi.org/10.1111/1464-0597.0077z.
The Economist. 2022. “COVID Has Reset Relations between People and Robots.” February
25, 2022. https://www.economist.com/science-and-technology/covid-has-reset-relationsbetween-people-and-robots/21807815.
Tomasko, R. 1990. Downsizing: Reshaping the Corporation of the Future, 2nd ed. New York,
NY: Amacon.
Trading Economics. 2019. “Canada Labor Force Participation Rate.” Accessed September
7, 2022. https://tradingeconomics.com/canada/labor-force-participation-rate.
Trevor, C and A. Nyberg. 2008. “Keeping Your Headcount When All About You Are Losing
Theirs: Downsizing, Voluntary Turnover Rates, and the Moderating Role of HR
Practices.” Academy of Management Journal 51: 259–
276.https://psycnet.apa.org/doi/10.5465/AMJ.2008.31767250.
Tsai, C. and Y. Yen. 2008. “A Model to Explore the Mystery Between Organizations’
Downsizing Strategy and Firm Performance.” Journal of Organizational Change
Management 21: 367–384. https://doi.org/10.1108/09534810810874831.
Utomi, T. 2022. “Is the Great Resignation over? Not Even Close.” HRPA. Accessed
September 6, 2022. https://www.hrpa.ca/hr-insights/is-the-great-resignation-over-noteven-close/.
Van Dierendonck, D., and G. Jacobs. 2010. “Survivors and Victims, a Meta-analytical
Review of Fairness and Organizational Commitment After Downsizing.” British Journal of
Management: 96–109. https://doi.org/10.1111/j.1467-8551.2010.00724.x.
Vickers, M. 2009. "Journeys into Grief: Exploring Redundancy for a New Understanding of
Workplace Grief." Journal of Loss and Trauma 14: 410–412.
https://doi.org/10.1080/15325020902724198.
Wagar, T., and K. Rondeau. 2002. "Repeated Downsizing, Organizational Restructuring and
Performance: Evidence from a Longitudinal Study." Proceedings of the Administrative
Sciences Association of Canada (HRM Division). Winnipeg.
Wagar, T. 2001. "Consequences of Workforce Reduction: Some Employer and Union
Evidence." Journal of Labor Research 22: 851–862. https://doi.org/10.1007/s12122-0011056-1.
Wingfield, N. 2017. “As Amazon Pushes Forward with Robots, Workers Find New
Roles.” The New York Times, September 10, 2017.
https://www.nytimes.com/2017/09/10/technology/amazon-robots-workers.html.
World Resources Institute. 2021. “Alberta, Canada: Supporting Both Workers and
Communities to Ensure a Just Transition.” Accessed September 6, 2022.
https://www.wri.org/update/alberta-canada-supporting-both-workers-and-communitiesensure-just-transition.
Wright, B., and J. Barling. 1998. "The Executioner's Song: Listening to Downsizers Reflect on
Their Experiences." Canadian Journal of Administrative Sciences 15: 339–355.
https://doi.org/10.1111/j.1936-4490.1998.tb00176.x.
Zadikan, Michelle. 2020. “COVID-19 Jobs Tracker: Layoffs, Furloughs and Hiring during the
Pandemic." BNN Bloomberg. Accessed September 6, 2022.
https://www.bnnbloomberg.ca/covid-19-jobs-tracker-layoffs-furloughs-and-hiring-duringthe-pandemic-1.1417086.
Zyglidopoulos, S. 2005. "The Impact of Downsizing on the Corporate Reputation for Social
Performance." Journal of Public Affairs 4: 11–25. https://doi.org/10.1002/pa.168.
Credits
[1] Image by r.classen/Shutterstock.com
[2] Video courtesy of The National News/YouTube
[3] Video courtesy of Yahoo Finance/YouTube
[4] Video courtesy of ABC 7 Chicago/YouTube
[5] Video courtesy of Yahoo Finance/YouTube
[6] Video courtesy of Yahoo Finance/YouTube
[7] Image by bunlee/Shutterstock.com
[8] Hero Images/Getty Images
[9] Image by Mangostar/Shutterstock.com
[10] Video courtesy of CTV News/YouTube
[11] Video courtesy of CNET Highlights/YouTube
[12] Video courtesy of World Economic Forum/YouTube
[13] Video courtesy of Insider Tech/YouTube
[14] Video courtesy of Rich DeMuro/YouTube
[15] Video courtesy of Inc./YouTube
[16] Image by boonchoke/Shutterstock.com
[17] Video courtesy of Jay Shetty/YouTube
[18] Video courtesy of SciShow Psych/YouTube
[19] Image by Stock-Asso/Shutterstock.com
[20] Image by Gorodenkoff/Shutterstock.com
[21] Video courtesy of Yahoo Finance/YouTube
[22] Video courtesy of Yahoo Finance/YouTube
[23] Video courtesy of Global News/YouTube
[24] Image by skipper_sr/Shutterstock.com
[25] Video courtesy of Yahoo Finance/YouTube
[26] Image by Sheila Fitzgerald/Shutterstock.com
[27] Video courtesy of Montreal Gazette/YouTube
[28] Video courtesy of CBC News: The National/YouTube
Case Study: A Downsizing Decision at the Department of
Public Works
Kathleen Pool is a human resources officer with a municipal government in a town of just
over 25,000 people. A well-known consulting firm, in co-operation with senior government
officials, recently completed a detailed audit of government operations. As a result of the
audit, selected government departments (including the Department of Public Works) were
targeted for restructuring. The consultants made it clear in their report that they believed
the budget allocation for the Department of Public Works was “adequate” and
recommended that the department receive a 2.5 percent annual increase in funding for the
next two years. Note that operating costs for the department are projected to increase at a
rate of about 4.5 percent annually (due, in part, to the high rate of inflation).
Kathleen has been given the responsibility of managing the restructuring at the Department
of Public Works. Rather than directing the department to cut a specific number of jobs,
Kathleen has been asked to develop a restructuring strategy that will meet the town’s
mission of “providing quality service to its residents in a cost-effective manner.” She is
currently reviewing the operating policies at the Department of Public Works.
The Department of Public Works is responsible for tasks such as garbage collection, basic
sidewalk and road maintenance, city parks and arenas, installation of street signs and
parking meters, and snow removal. At the present time, employees work in one of three
subunits: garbage collection, parks and recreation, or city maintenance. Each of the
subunits is housed in a separate building and has its own equipment, supplies, and
operating budget. As well, while employees can formally apply to transfer to a different
subunit, the managers of the subunits involved and the director of Public Works (who is
responsible for the overall operation of the department) must all agree. Unless a vacancy at
one of the subunits arises, it is rare that any employee transfer will be approved.
In 2017, the Department of Public Works underwent a considerable downsizing and 4
percent of its permanent positions were cut. In addition, the department stopped its
practice of hiring summer students from local high schools and universities in an effort to
cut costs. Prior to this, students were employed over the summer to help with special
projects and to cover vacation periods for full-time employees.
In 2018, the municipality brought back the practice of hiring summer students. This
decision was welcomed by the full-time employees at the Department of Public Works, in
particular because it allows the employees much more flexibility in selecting their vacation
time. However, this practice ended in 2020 due largely to the COVID-19 pandemic.
Management put considerable restrictions on when employees could go on vacation;
employees with 10 or more years of service could have a maximum of one week’s vacation
in July or August, while employees with less than 10 years of service were not permitted to
go on vacation during these two months. Under the collective agreement, management
had the right to determine the vacation schedule of unionized employees.
On October 1, 2021, the municipality announced a policy requiring all employees to be
fully vaccinated against COVID-19, and any employee not meeting this requirement would
be placed on unpaid administrative leave beginning December 1, 2021 (unless the
employee had an employer-approved exemption). Four employees were subsequently
placed on unpaid leave. However, with the relaxation of COVID-19 restrictions in 2022, the
four employees returned to work and the practice of hiring summer students was
reinstated.
In reviewing turnover data for the Department of Public Works, Kathleen found that very few
full-time employees quit their jobs to pursue other employment opportunities. In addition,
dismissals for cause were rare; over the past 10 years, only two employees were
terminated for cause. In both cases, the union lost the discharge grievance at an arbitration
hearing.
Since 2010, the municipality has had a local consulting firm conduct surveys of both
municipal employees and the users of government services. A summary of the findings
from the employee survey for the years 2016 to 2022 (for Department of Public Works
employees only) is contained in Table 10.1. Note that each of the items (such as employee
morale) is measured on a 5-point scale. Similarly, Table 10.2 contains summary
information from the survey of municipal residents concerning the performance of the
Department of Public Works. Again, respondents were asked to reply using a 5-point scale
(1 = very low; 5 = very high). Note that on both the employee survey and the users of
government services survey, there were only minor differences in the results when the data
were broken down by subunit (garbage collection, parks and recreation, or city
maintenance).
Table 10.1 Summary Results from a Survey of Public Works Employees
Employee
Year
Morale
Employee
Commitment to
Department
Intention to Stay
Overall Employee
with the
Job Satisfaction
Municipality
2016 3.89
3.72
3.97
4.77
2017 2.21
1.99
2.34
4.11
2018 2.89
3.02
3.10
4.32
2019 3.56
3.59
3.71
4.71
2020 2.38
2.33
2.66
4.44
2021 2.31
2.26
2.39
4.51
2022 2.84
2.91
3.14
4.66
Table 10.2 Summary Results from a Survey of Municipal Residents
Year
Level of Satisfaction with the Board of
Public Works
Quality of Service Provided
by the Board of Public Works
2016 3.95
3.88
2017 3.22
3.01
2018 3.48
3.55
2019 3.86
3.79
2020 3.18
3.23
2021 3.47
3.41
2022 3.78
3.74
Case Study Question 10.1
Outline the issues that Kathleen should consider prior to designing a restructuring strategy.
Case Study Question 10.2
Design a strategy to restructure the Departm