Chapter 4 Human Resource Strategy and Planning

Human Resource Strategy

In Chapter 1, we explained that organizations can have three levels of strategy: corporate, business, and functional. A business strategy sets out how an organization will achieve its goals and, in the private sector, compete with rival organizations.2 Organizations then develop functional strategies that set out how each department supports their business strategies. One of the functional strategies that organizations often have (if only implicitly) is a human resource strategy. It is a plan of action designed to achieve a business goal. This entails developing a set of mutually supportive HR practices that meet anticipated organizational needs based on an analysis of the business strategy and organizational context. The exact practices that an organization adopts should be selected to meet specific organizational goals rather than simply adopting “best practices.”3

As a result, HR strategies tend to be highly idiosyncratic, so it is difficult to offer a typology of them. For example, a small organization that has adopted a cost-leader business strategy (see Chapter 1) might have a simple, reactive, human resource strategy designed to minimize labour costs and address issues (e.g., vacancies, harassment, performance) as they arise. A more sophisticated organization might have a much more proactive approach, with a unique HR strategy for each organizational unit. For example, a large non-profit with a differentiation business strategy might have different HR strategies for its small cadre of long-term and highly skilled administrators and for its front-line staff, who operate short-term projects. Its HR strategy for core administrative staff might focus on minimizing turnover through competitive wages and development opportunities and internal promotions. In contrast, its HR strategy for short-term programs might focus on minimizing costs by taking advantage of a loose labour market for front-line staff and hiring recent graduates on short-term, part-time contracts.

Organizational approaches to developing or renewing an HR strategy fall along a continuum anchored by an inside-out approach on one end and an outside-in approach on the other.4 An inside-out approach attempts to modify existing HR practices to improve their alignment with and support of a business strategy. This approach is sometimes called an incremental strategy, in which HR changes are made (usually slowly) over time to shift organizational processes and structures toward the desired state. This approach is often adopted in mature organizations with well-established HR practices. It has a lower risk of significantly disrupting the organization, but progress can also peter out over time, especially if workers resist the approach.

In contrast, an outside-in approach selects and implements HR structures and processes best suited to supporting the business strategy and goals in anticipation of a significant improvement in organizational performance. This approach can result in dramatic shifts in HR practices (e.g., outsourcing portions of the business, changing terms and conditions of employment). Such a change can result in profound disruptions to organizational performance and entail high costs (both expected and unexpected). An outside-in approach assumes that the gains in productivity resulting from rapid change will offset the temporary costs associated with any change. In practice, most organizations will adopt a mixed approach. For example, they will try to retain (perhaps with modifications) as many existing structures and processes as possible to save money and prevent disruption when implementing new structures and processes where needed.

An organization’s HR strategy can be tested for its vertical and horizontal fit.5 Vertical fit refers to how well the HR strategy is aligned with the business strategy. Table 4.1 presents three HR domains (selection, compensation, training) and HR strategies consistent with each of the three business strategies from Chapter 1. These HR strategies are not recommendations. They are simply examples of typical approaches to these HR functions under each business strategy. It can sometimes be difficult to align perfectly HR and business strategies because of the circumstances within which an organization operates. For example, a garage-building company might wish to be a cost leader by developing a two-tiered labour force (with a core of highly paid workers supplemented by lower-paid temporary workers). But a tight labour market might make it impossible to attract enough qualified workers if the company offers low-wage, temporary work. This means that the organization cannot develop a two-tiered labour force.

Horizontal fit is the degree to which selected HR strategies complement and reinforce each other. The process of determining horizontal fit requires thinking about the interconnections of the HR domains set out in Table 4.1. The ultimate goal of assessing horizontal fit is to identify areas where different approaches do (or could) support or undermine one another. For example, an organization might decide to make a portion of its compensation package contingent on meeting output targets. This decision might incentivize staff to work quickly. But it might also (unintentionally) incentivize workers to work unsafely or prioritize quantity over quality of output.

An organization that assesses the horizontal fit of incentivizing high-volume production must consider whether the knock-on effects of this approach on quality and safety result in a net gain for the organization and are consistent with its business strategy. If either answer is no, then the organization might wish to revisit the value of linking compensation to output levels and/or consider ways to mitigate the knock-on effects. Continuing with the example above, an organization could respond to the concerns about safety and quality by creating a slightly more complex set of criteria on which to base compensation. A more complex set of criteria would require more effort for workers to understand and the organization to assess.

Human Resource Planning

Operationalizing a human resource strategy requires an organization to develop and implement HR processes and policies that result in the organization having the right number of appropriately qualified workers when and where they are needed. Organizations do this by developing a human resource plan. As noted above, HR planning is the process of anticipating and addressing the movement of workers into, out of, and within an organization over time. This plan should inform other HR functions, such as recruitment, selection, training, compensation, and performance. Figure 4.1 illustrates the five steps in human resource planning and its iterative nature.

Planning starts with an organization forecasting its labour demand (i.e., which workers will be needed) in the future. The organization then estimates the labour supply (i.e., the number and nature of workers whom it expects will be available at that time, accounting for factors such as staff turnover, vacations, and leaves). These labour demand and supply forecasts are then compared to identify where in the organization there are going to be gaps (i.e., too many or too few workers) that must be addressed to achieve the organization’s objectives. A plan is then developed to ensure that the organization has the right number of workers when and where they are required. This can include planning to hire, train, promote, or lay off staff or to intensify or contract out work. The plan is then periodically evaluated to determine if it is still accurate and if it is working. This evaluation can result in more accurate forecasts and more effective plans in future planning cycles.

Organizations have different approaches to HR planning. Some do little, whereas others have much more sophisticated approaches.7 It can be useful to think about an organization’s approach to HR planning along five vectors.

• • Informal or formal: Organizations with formal HR planning processes typically have regular, standardized, documented, and evaluated processes with clear methodologies. Organizations with informal HR planning might engage in sporadic and ad hoc planning as needs arise (e.g., when someone quits or a new project is started).
• • Short term or long term: Organizations can plan over different time horizons. Some might plan only in response to events (e.g., sudden growth or contraction) and look only into the near future. Others might consider multiple time frames, including a long-term plan to implement their business strategies. For example, an organization might have short-term (one year), intermediate (two to three years), and long-term (four to five years) planning horizons.8
• • Static or dynamic: The adaptability of an HR plan varies among organizations. Some might be less flexible in the face of changing circumstances because of their business processes. For example, meat-packing plants struggled with the social-distancing requirements of COVID-19 because of the physical setup of their plants, which required full shifts of staff in close quarters. In contrast, restaurants could more easily adjust their staffing levels when they reduced seating and/or began offering take-out and delivery services.
• • Stand alone or strategic: In some organizations, HR planning is focused on operationalizing business strategies. In other organizations, it informs business strategies (see Feature Box 1.6).
• • Integrated with HR processes or independent activity: In theory, HR planning should drive other HR processes, such as recruitment and selection, compensation, and training. In some organizations, the impact of HR planning on other HR domains might be weak or inconsistent. This can reflect that the planning itself is weak or that there is a loose coupling between HR functions.

It is necessary for HR practitioners to understand an organization’s approach to HR planning (and why that organization approaches planning in this way) before suggesting changes to the approach. Typically, there are reasons why an organization does things in certain ways, such as tradition, financial constraints, and internal political pressures. Understanding these constraints can help to identify where improvements in HR planning are possible and where they are not.

Forecasting Labour Demand

Estimating the number of different workers that an organization will need at some future point (e.g., in one year) is called demand analysis. Demand forecasting techniques can be either quantitative or qualitative. Quantitative techniques use various mathematical and statistical approaches to forecast demand and include extrapolation, trend analysis, ratio analysis, and regression analysis. Qualitative approaches rely on expert judgment and include the Delphi technique, the nominal group technique, and scenario analysis. Each of these techniques is examined below.

The planning techniques used by organizations will depend on the size and complexity of the planning tasks. For example, the owner of a concession stand at a beach might draw from past experience in deciding to hire four or five extra staff from June to September. This is an example of extrapolation, using past experience to project future demand. In contrast, a large tech company might develop short- and long-term demand forecasts using a ratio analysis to estimate how expected sales growth will drive staffing needs. The tech firm might also cope with complex drivers of labour demand (e.g., competitive pressures, regulatory changes, economic conditions) by engaging in scenario planning. In this way, the more sophisticated tech firm is tempering quantitative projections with the context provided by qualitative data (in this case, informed and reliable opinions).

Extrapolation estimates future labour demand based on past experience. Many organizations informally extrapolate labour demand. For example, a restaurant manager might know that she has hired an average of two new servers each month for the past four years to account for voluntary and involuntary turnover. This means that she will likely need to hire and train 24 new servers in the next year. She might also know that there is usually more turnover in April and August (because many of her servers are postsecondary students whose availability is driven by the school year) and will plan for similar hiring surges in the coming year. The risk associated with extrapolation is that historical patterns are not always good guides to future patterns (see Feature Box 4.1). For example, a sudden economic boom might dramatically increase turnover at the restaurant as workers leave for more lucrative job opportunities.

Trend analysis predicts the number of employees required based on changes in another value, such as projected sales or customer numbers. Trend analysis (sometimes called indexation) is expected to generate a more accurate prediction of labour demand than straight extrapolation because there is (one hopes) a causal relationship between the index value and labour demand. For example, an HR practitioner might assume that the number of customers served (the index value) determines the number of staff needed (the labour demand).

The value selected to drive the index will vary among organizations but typically is related to the core business (i.e., good or service) provided by an organization. For example, a non-profit organization that provides home nursing care under contract to the government in three towns might expect there to be a relationship between its staffing needs and the number of older residents in the towns. Basically, it assumes that about the same proportion of residents in each town will require home care each year. The non-profit might use historical staffing and census data to create an index and thereby predict its future need for workers.

Table 4.2 is an index created for this scenario by following seven steps.

1. 1. Populate the employee column (2019–2024) based on HR records.
2. 2. Populate the seniors column (2019–2024) based on census records.
3. 3. Divide the number of seniors by the number of staff each year to get an index (seniors per staff member). For example, in 2019, there were 4,532 seniors whose home-care needs were met by 50 staff. So, one staff member was required for every 90.6 seniors in the community.
4. 4. Total the index numbers (518) and divide it by the number of years of data (six) to get the average number of seniors (86.3) whose needs were met by each staff member.
5. 5. Populate the seniors column (2025–2026) based on the expected population of seniors (data known and accessible).
6. 6. Forecast the number of staff needed (2025–2026) by dividing the expected number of seniors by the average index (86.3).
7. 7. The forecast projects a need for 51.1 full-time staff in 2025 (4,412 divided by 86.3) and 50.6 full-time staff in 2026 (4,364 divided by 86.3).

This could be expressed in equation form as

Like all projections, those in Table 4.2 are only as accurate as the assumptions built into them. A key assumption in this trend analysis is that the rate at which seniors require home care is constant. If a greater (or lesser) proportion of seniors will need home care, then the historical index is not a good guide to staffing needs. That index also assumes that the number of seniors whom a worker can care for is relatively constant. A significant change in the nature of the work (e.g., providing fewer services or services by telephone) would reduce the utility of the historical index. Feature Box 4.1 explores some of the perils and pitfalls of forecasting.

Ratio analysis predicts labour demand using the ratio between some causal factor and the number of employees. The key difference between ratio analysis and trend analysis is that the former does not require significant historical data. Rather, it uses present-day data to estimate demand under a different scenario. For example, if the non-profit offering home care discussed in Table 4.3 considers bidding on a contract to offer home care in a fourth town, then it could use ratio analysis to determine how many additional staff in each position will be needed. We can assume that the organization knows from census data (which are readily available) that adding a fourth town will require it to serve approximately one-third more senior citizens.

Table 4.3 shows how to perform a ratio analysis in three steps.

1. 1. Populate the current employee count column using existing HR data.
2. 2. Multiply each current employee count by 1.33 (the estimated one-third increase) to populate the projected employee count table. (In this example, decimals have been rounded up or down to the nearest whole number).
3. 3. For each job, subtract the current employees from the projected employees to determine the additional number required in each job category.

Regression analysis is a more complex technique that can be useful. Regression measures the degree that a dependent variable, in this case the number of employees needed, is linked to a set of independent variables, such as population growth, new technology, or productivity. For example, an HR practitioner might know (from observing multiple baristas over time) that a barista can consistently make six lattes in 10 minutes. The practitioner can then use this relationship to project how many baristas would be needed to make any number of lattes in a 10-minute period.

The real world is rarely as simple as the barista example above. HR practitioners, however, can use different forms of regression analysis to model the cumulative impact of multiple independent variables on labour demand using historical data. For example, our non-profit might need to model the effect on labour demand for home-care staff during a pandemic, such as (1) an increase in the number of senior citizens who will need services, (2) the delivery of some mental health services by telephone, (3) reduced worker productivity because of the implementation of time-consuming pandemic protocols for each home-care visit, and (4) increased staff sick days because of the need for staff to isolate after exposure to the virus. The estimated direction (positive or negative) and impact (large or small) on staffing can then be used to compute an overall impact. Regression analysis requires a large data set and the skill to perform and interpret the analysis. This means that regression analysis tends to be limited to large organizations with sophisticated HR departments.

One of the challenges associated with quantitative demand analyses is considering the myriad factors that can affect labour demand. Changes in demographics, technology, legal requirements, competition, internal processes, and business strategies can be difficult to accommodate in quantitative forecasts. Organizations can use qualitative forecasting techniques to predict how these factors will affect labour demand. There are three main qualitative demand forecasting techniques.

• • The Delphi method identifies a group of experts and asks each to write a demand analysis, including the reasons and data underlying the analysis. It is generally in response to a specific question (e.g., what will be the HR demand in X department by X date?). The individual forecasts are aggregated by HR staff, and the results are shown to each expert. Based on the summaries, the experts are then allowed to adjust their individual forecasts. This process is repeated (up to five times) until a consensus on the likely future state emerges. In HR planning, experts can be line and department managers as well as other organizational actors with insight (e.g., technical staff, researchers, union representatives). The strengths of the Delphi method are its ability, derived from pooling the knowledge of multiple experts, to account for the many factors that can drive labour demand and the development of a single labour demand forecast.
• • The Nominal Group Technique also asks a group of experts to develop individual forecasts. These experts are then brought together, each forecast is presented, and discussion on the basis of each forecast takes place. The experts then anonymously rank the forecasts, with the preferred one used to inform HR planning. This method is faster than the Delphi method but might not result in a forecast as finely nuanced as one in the Delphi method because experts select from among a small number of forecast options rather than develop a consensus forecast.
• • Scenario analysis sees experts develop multiple forecasts in response to different scenarios. This approach helps to factor in uncertainty. For example, a firm might ask for a steady-state forecast as well as forecasts based on 10% increases and decreases in demand for the organization’s product or service. Or a firm might model the effects of possible changes in operational practices. Experts might participate in the development of the scenarios (e.g., identifying the factors to consider) as well as the development of the demand analysis for each scenario. The strengths of this approach are its ability to cope with multiple factors and to draw our attention to the range of possible future states.

Qualitative demand analysis can provide a useful supplement to quantitative techniques. Qualitative techniques can also be useful when an organization considers developing a new line of business (and thus has little data from which to draw).

Forecasting Labour Supply

As set out in Figure 4.1, the second step in HR planning is understanding an organization’s supply of labour at a fixed point in the future. A supply analysis includes forecasting the internal labour supply, which comprises the existing workforce minus turnover, as well as the external labour supply (i.e., the number of appropriately qualified workers available for hire). A small organization operating in a stable environment might be able to estimate its future labour supply informally by identifying who is likely to retire or otherwise move on, who could be transferred or promoted to replace them, and from where new employees might be hired. Larger organizations might use more formal supply forecasting techniques set out below.

Forecasting internal labour supply requires an organization to review information about its current workforce and then project the state of its workforce. An estimate of the future workforce requires considering the number of workers who will leave the organization. Workers can leave the workforce voluntarily (e.g., by quitting or retiring) or involuntarily (e.g., being fired or laid off or by dying). Supply analyses might also need to account for workers who are temporarily unavailable because of an event (e.g., taking parental leave or being off work because of injury or illness) or who move within the organization (e.g., promotion or transfer). The resulting forecast should have enough detail to allow an organization to identify whatever worker attributes the organization considers important at the future date. For example, an organization might track the jobs performed by workers or the skills that they possess to inform its analysis in step 3 of the HR planning process. Feature Box 4.2 discusses the role that human resource information systems can play in providing adequate data about the workforce.

Trend analysis is a basic, but often effective, approach to forecasting supply. This approach assumes that past experience provides a good indication of future trends in turnover. For example, the owner of a small chain of bakeries might review HR records and discover that 5% of staff retire, 15% quit, and 10% are fired each year. Assuming that there are no significant changes in the environment, these percentages can be applied to the existing labour force to produce a rough estimate of the bakery’s internal labour supply in future years. Trend analysis can also spark further inquiries. Annual staff turnover of 30% at the bakeries entails significant hiring and training costs. The owner might ask are there ways to retain staff who might otherwise quit? Or are there ways to adjust hiring and performance management to reduce the percentage of employees who are fired?

A more detailed approach to internal supply forecasting is a Markov analysis, which predicts employee movement into and out of an organization over time. Table 4.4 provides a sample Markov analysis that projects the 2025 labour supply of a chain of four clothing stores based on the 2024 workforce and historical trends in worker movement. The left-most column represents the 2024 (i.e., present-state) workforce, broken down by category of job and indicating the number of workers in each job. The columns to the right represent a forecast of where the 2024 workers will be in 2025 (e.g., same job, different job, exit). This forecast is based on historical data (expressed as percentages and then rounded up or down to whole workers) about the trajectory of workers in each job.

The Markov analysis in Table 4.4 tells us a number of useful things.

• • Turnover: Reading rows from left to right gives HR practitioners a sense of potential turnover in each position. For example, the assistant manager row lets them see that the normal complement of assistant managers is four. Of the current four assistant managers in 2024, one is likely to get promoted to a manager, two will remain assistant managers, and one will exit the organization in 2025.
• • Internal movement: Reading columns from top to bottom gives HR practitioners a sense of how workers move within the organization. For example, reading the assistant manager column lets them see that, by the next year, the assistant manager complement will comprise two current assistant managers and two floor supervisors who will be promoted. This pattern can suggest the kinds of training and development to offer workers in each job category.
• • Labour supply: The projected supply row at the bottom of the table lets HR practitioners see how many workers in each job category they are likely to have in 2025 based on existing workers plus internal promotions. This supply can be compared with the normal complement to predict how many workers will need to be hired externally in each category. For example, looking at the store clerk job category, the normal complement is 24, and the projected supply in 2025 is 13, meaning that the stores will need to hire 11 store clerks.

• • Patterns and problems: The exit column allows HR practitioners to see patterns in worker departures. For example, 47% of sales clerks leave the organization each year. This seems like a high percentage and entails additional hiring and training costs. This might be an area that warrants further investigation. Similarly, filling supervisor and manager positions solely through promotions raises the question of whether these positions are being filled by the best candidates or simply the most convenient candidates.

Within any organization, some jobs will be more important organizationally than others, such as highly technical jobs associated with a core business function or senior management positions. Turnover in these positions can pose a significant business risk. Consequently, supply analysis can include identifying internal staff who can step into these roles. Figure 4.2 is an example of a replacement chart. In this example, a software development company has taken its staffing chart and identified the positions in which a sudden departure would leave the company vulnerable. The replacement chart identifies potential internal replacements, including their present performance and promotional potential. A replacement chart can also identify other characteristics of possible replacements. For example, an organization implementing an equity, diversity, and inclusion (EDI) program might identify candidates who meet the organization’s EDI hiring goals for gender, age, ethnoracial background, or other personal characteristics where the current workforce does not match the organization’s goals.

Figure 4.2 identifies that potentially there are few qualified replacements for the lead programmer and VP finance and operations positions. Since these positions have been identified as critical to organizational continuity, it might be appropriate either to develop additional internal candidates capable of taking over these roles or to identify competent external candidates.

All organizations, at some point, will fill positions with workers new to the organization. Forecasting the external labour supply available to an organization can be challenging. One issue is that, though there is a lot of data available on the labour force, the data might be poorly suited to forecasting the availability of workers at specific points in time and space. Often, for example, labour market data are backward looking. That is, they tell us how many workers were available as of the last count but not how many will be available in the future. The data can be presented at too high a level (geographically or occupationally) to tell us whether or not, say, there will be enough physical therapists available for hire in Sydney, Nova Scotia, three years in the future.

A second challenge with external labour forecasting is that many factors can affect the labour supply, and these factors can change over time. They include the unemployment rate and competition for specific skills, education and skill levels, worker mobility and attractiveness of the job location, and regulatory and technological changes. A forecast made during a period of high unemployment might not be an accurate guide to the availability of workers if the economy turns around. To forecast the external labour supply, HR practitioners need to do three things.

• • Qualifications: HR practitioners need to identify which positions they need to fill and/or which competencies they need new hires to possess. Generally, the more specific the answer to this question, the more accurate their forecast will be because they will get fewer false positives (i.e., potential hires actually unable to do the job).
• • Time frame: HR practitioners need to determine when the hiring will occur (e.g., within the next year? the next three to five years?). If their need is immediate, then they will look at data on the present labour force (i.e., people available for hire). If the need is further in the future, then they can look at projections about the future labour force, which can include those currently in training as well as qualified staff who might not yet be present in Canada.
• • Geography: HR practitioners need to identify the geographic parameters of their forecasts. As noted in Chapter 1, labour markets have geographic parameters. If an organization is looking to hire a senior manager, then applicants might be willing to move a significant distance to take the job. This means that the potential labour pool might be provincial or national in scope. If an organization is looking to hire someone for a low-wage position, then the potential applicant pool might be limited to those available locally (perhaps even within walking, cycling, or transit distance).

If HR practitioners need to hire a chemist for a job with a good wage within the next year, they would likely look at data on the current supply of qualified chemists in their province or territory or even nationally. In contrast, if they need to hire 30 servers (a job that many people can perform) over the next five years at minimum wage, they will likely look at projections of unemployment in the town or city (or even neighbourhood) in which their organization operates. Feature Box 4.3 outlines key sources of data that HR practitioners can use to forecast the external labour supply.

The limitations on projections noted in Feature Box 4.1 also apply to internal and external labour supply forecasts. For example, an economic boom can mean that a restaurant faces higher than expected turnover (as workers seek to trade up to better jobs). This will render trend and Markov analyses based on historical data invalid. A boom can also cause the external labour supply to tighten, with fewer workers willing to make themselves available at prevailing wage rates and working conditions. Such changes can require adjustments to human resource plans.

Gap Analysis and Objective Matching

Once an organization has completed its labour demand and supply analyses, it is necessary to perform a gap analysis. Such an analysis determines in which jobs (or skill categories) an organization will face a shortage or surplus of workers. Although it is tempting to focus solely on the number of employees during a gap analysis, this is also an opportunity to consider other organizational goals, such an increasing equity and diversity in the workforce. The ability of an organization to “see” equity and diversity during a gap analysis turns on whether or not the organization has access to the data (perhaps from the organization’s HRIS). Identifying equity-related gaps during analysis then allows organizations to develop objectives that address the gaps.

The way that an organization performs a gap analysis depends on the supply and demand forecasting methods used. This process is best illustrated with an example based on the chain of clothing stores discussed in Table 4.4. When forecasting labour demand in 2025, the chain owner primarily used extrapolation. Stable local economic forecasts and the absence of any plan to expand operations meant that she expected the chain would need the same number and type of employees in 2025 as it did in 2024. Its quantitative forecasting was modified by qualitative information generated during scenario planning. Specifically, the chain owner and HR practitioner modelled the effects of several possible operational changes in keeping with the chain’s business strategy of being a cost leader. In the end, the owner decided that the chain would contract out custodial work (reducing associated labour costs by 35%). She also decided to discontinue in-store security after comparing the costs of providing security with the expected costs of theft in its absence.

The chain forecast internal labour supply for 2025 using a Markov analysis (see Table 4.4). Investigation of the high level of turnover in the sales clerk position determined that the turnover was less costly than any of the options for reducing it. The chain’s forecast of the external labour supply entailed examining the local unemployment rate (currently 6.2%, forecast at 6.0% in 2025). The HR practitioner then combined the demand and supply data to identify gaps expected in the next year (see Table 4.5).

The gap analysis makes plain that, in 2025, the clothing chain will likely have both a shortage of workers in two jobs (sales clerks and shelf stockers) and a surplus of workers in two jobs (custodian and security). These projected worker surpluses and shortages can then be used to formulate strategies to ensure that the chain meets its HR planning objectives (i.e., has the right number of adequately skilled employees in 2024). Before turning to that process, it is important to note that this gap analysis identifies the likely future state for planning purposes. In reality, there can be a difference between the gap analysis and the actual state of affairs in 2025. For example, the internal supply forecast notes that, on an annualized basis, 10% of the HR practitioners turn over. Since there is only one HR practitioner position, the chain will periodically see 100% turnover in this job. Similarly, the actual shortage or surplus in any job category can vary from year to year.

Once projected surpluses and shortages have been identified, HR practitioners can develop plans to address them. Typically, an organization will develop HR objectives. Such objectives specify an outcome (or behaviour), the conditions under which it will be achieved, and the criteria by which performance will be judged. Continuing the clothing chain example, HR objectives related to the surplus of custodians might be the following.

• • Contract out cleaning services to commence on July 1, 2025, at a cost savings of at least 35%.
• • Terminate the employment of custodians by June 30, 2025, without triggering litigation.

When formulating an objective, it is easy to forget to include all three components (particularly criteria). To prevent this, it can be useful to break down objectives into the three components as shown in Table 4.6. Once objectives are established, an organization can begin planning how to achieve the objectives.

Planning

Planning entails operationalizing HR objectives, such as identifying how the organization will cope with labour shortages and surpluses. The key risk associated with a labour shortage is that an organization might not be able to implement its business strategy. The specifics of any projected labour shortage will determine the exact degree and impact of this failure. There are four main ways to address a projected labour shortage.

• • Hire new employees: Assuming that there are unemployed workers available for work, new workers can be hired under a variety of employment conditions (e.g., full time versus part time, permanent versus temporary), depending on the organization’s need and the willingness of workers to accept such terms.
• • Contract out the work: Organizations can arrange for work to be performed by temporary staff (supplied by an employment agency), independent contractors (e.g., janitors who run their own small companies), or other companies (e.g., contracting a large firm specializing in cleaning stores).
• • Promote existing staff: In some cases, it makes sense to promote existing staff to address specific shortages. This strategy might require making some provision for additional training or development and trigger hiring to positions rendered vacant by the promotion.
• • Intensify work: Staffing shortages can be addressed (at least temporarily) by making staff work harder. This can entail mandatory overtime or cross-training staff, such that they can perform more tasks and potentially fill down time on the job. For example, a sales clerk could also be tasked with stocking shelves during slow periods of the day.

When deciding how to resolve a labour shortage, an organization might need to consider the relative cost of the option, the time frame (i.e., urgency) and speed at which the option can be implemented, the quality of the work that it will receive, the fit with its business and HR strategies, and the degree to which it can change approaches if problems occur. Feature Box 4.4 examines how the construction industry in Alberta dealt with long-term labour shortages during the early 2000s and the implications of this approach for different groups of workers.

The key risk associated with a labour surplus is that the organization will have higher than necessary labour costs as workers sit idle. Idle workers represent a significant opportunity cost. There are three main ways to address a labour surplus.

• • Short-term reductions in the workforce: Organizations seeking immediate reductions in their workforces can lay off their employees. Layoffs can be permanent or temporary and entail significant financial obligations to affected employees (see Chapter 9). Layoffs in unionized workplaces must also follow any job security provisions in the collective agreements such as the right of workers to “bump” those with less seniority to avoid being laid off (see Chapter 10). Organizations can also seek to incentivize voluntary resignations through financial packages (i.e., buyouts). And organizations can offer unpaid leaves of absence (e.g., to return to school, travel, or undertake some other non-work activity). Short-term reductions can negatively affect morale and trigger undesirable staff departures (e.g., among essential or highly skilled workers).
• • Long-term reductions in the workforce: Organizations with a longer time frame for workforce reductions can realize them through attrition. For example, a hiring freeze takes advantage of natural worker turnover to reduce the staffing complement. A hiring freeze is a low-cost strategy but means that the organization has little control over where attrition occurs. Organizations can also offer buyout programs targeting, for example, employees close to retirement.
• • Changing the terms of work: Organizations might also be able to negotiate changes in the terms of work with workers or through their unions. For example, workers might agree to job sharing (in which two workers perform a job for a portion of the week), working fewer hours, or retraining. The key risk of changing the terms of work in a non-union environment is the possibility that workers will claim they have been constructively dismissed (see Chapter 9) and seek damages.

Downsizing a workforce can often have significant effects on those workers who remain with the organization. Seeing co-workers terminated or changes to the wage-rate or wage-effort bargain can cause workers to re-evaluate the efforts that they are prepared to put into their jobs. Workers often develop a series of expectations of how their employers will treat them (including the wage-effort bargain discussed in Chapter 1). These expectations are often called the psychological contract between workers and employers. When an employer violates the psychological contract, this can trigger anger, fear, and depression.17 Even workers who are not laid off can experience negative feelings, sometimes called survivor syndrome, during and after downsizing. Although it can be tempting to treat these emotional effects as externalities (i.e., consequences that do not affect the organization), these effects can cause declining productivity, additional staff turnover, and interest in unionization.

An organization can reduce the negative psychological impacts of downsizing by how it handles departures. Downsizing in which the decision-making process is perceived by the remaining workers as fair tends to result in fewer negative organizational consequences. The perception of procedural fairness can be increased by processes that give workers voice; that are transparent, internally consistent, and based on good information; that minimize the opportunity for favouritism or bias; and that offer the opportunity for correction if there is an error.18 Such a process can entail, however, additional costs, and organizations might need to assess the cost-benefit of procedural fairness.

Once a human resource plan has been developed, it must be communicated to those individuals whose work is central to carrying out the plan. This can include HR practitioners and line managers responsible for hiring, training, and firing staff. This step is necessary to ensure that the HR plan (designed to achieve the objectives) is actually implemented. Sharing the HR objectives and the reasoning behind them can be a useful tool for getting buy-in to the HR plan. Similarly, linking the achievement of specific aspects of the HR plan to individual performance assessments can motivate workers to take action in support of the plan (see Chapter 9).

Evaluation

The final step in HR planning is to evaluate whether the process was successful. At a high level, this means answering the question “did the organization have the right number of appropriately qualified workers when and where they were required?” There are many factors that contribute to this outcome (some of which have little to do with HR planning), so it is often more useful to assess the success of specific steps in the HR planning process.

• • Demand forecast: Did the labour demand forecast(s) accurately predict the organization’s actual labour demand? If there was a meaningful difference between forecast and actual demand, then identifying which factors explain the difference can improve future forecasts by refining the forecasting model. In contrast, if the discrepancy was related to unexpected factors (e.g., sudden economic boom or bust, major technological or market change), then it might not be possible to improve forecasting.
• • Supply forecast: Did the labour supply forecast(s) accurately predict the organization’s actual supply of labour? Again, if there was a meaningful difference between forecast and actual supply, then identifying which factors explain the difference can improve future forecasts.
• • HR objectives achieved: Was each HR objective achieved, given the specified outcomes, conditions, and criteria? If not, then where were the points of failure, and what explains each failure? It is important to distinguish between objectives that (in retrospect) were incorrect and those that were not achieved because of the method(s) selected to achieve them during the planning stage.

Evaluating HR planning requires organizations to possess data and expend resources analyzing those data. Some organizations might choose not to undertake evaluation because they expect a limited return on investment of backward-looking evaluation. Other organizations might be reluctant to perform evaluations for fear of identifying failures. For example, forecasts can reflect a failure to predict events or patterns that, in retrospect, appear to have been obvious (even if not necessarily at the time). Or forecasts might have been inaccurate because they were adjusted at the request of institutional leaders. These failures, caused by events outside the control of the HR practitioners involved, can still result in negative reputational or employment consequences for them.

In this way, internal evaluation of HR functions has both technical and political dimensions. It is possible to mitigate the risk associated with evaluation in a number of ways. Agreeing on and keeping a record of the process and data to be used for evaluation can limit the scope of interference. Focusing on outputs (e.g., forecasts) rather than outcomes (achieving specific goals) limits the evaluation to work in the control of HR practitioners. Finally, keeping a record of interventions and other important events can provide important explanatory context for evaluations.

Conclusion

The purpose of human resource planning, ultimately, is to mitigate the risk posed to an organization by having too many, too few, or the wrong mix of workers at some point in the future. A gap between required and available workers can imperil organizational profitability and/or the achievement of its business goals. Ideally, HR planning forewarns the organization of potential gaps so that the organization can adjust its workforce. This can include adjusting recruitment and selection plans (Chapters 5 and 6) as well as approaches to training (Chapter 7) and compensation (Chapter 8). A projected surplus of workers can also result in layoffs (Chapter 9).

The opening vignette saw Southlake Regional Health Centre announce that it would lay off 97 registered nurses to address a long-standing budgetary deficit. Setting aside the question of whether these layoffs would compromise the hospital’s ability to provide care during the COVID-19 pandemic, the announcement was timed to provide the five months of notice required by the nurses’ collective agreement. This notice period is intended to give affected workers time to seek other work or decide to exit the workforce. By March 2021, Southlake was reporting that all of the layoffs had been achieved without involuntary dismissals (e.g., through retirements and normal turnover).19 This timeline also allowed the health centre to hire lower-paid staff, including 49 practical nurses and 32 other positions, to maintain patient care after the layoffs.

This case is a good example of how HR planning helps organizations to identify gaps between their desired and present staffing complements with enough time to develop an effective response. It also highlights some of the limits of organizational planning. The need to reduce staffing by Southlake was driven by long-standing budgetary concerns. Yet the implementation of the layoffs took place in the context of a pandemic, the scope, staffing implications, and duration of which exceeded most of the projections available when the planning was performed. Similarly, the pandemic fundamentally altered the supply of nurses in Ontario, resulting in some hospitals, nursing homes, and laboratories offering large signing bonuses to staff units.20 This set of unanticipated factors highlights how the limits of supply and demand forecasting can affect the utility of HR planning.

Although it is most common to associate HR planning with ensuring that organizations have the right number of appropriately skilled workers, HR planning also offers organizations an opportunity to address long-standing equity and diversity issues. Typically, organizational hiring tends to reproduce the demographics of the organization’s existing workforce. The replication of existing demographic patterns through hiring practices highlights how identity factors can result in further advantage and disadvantage. Specifically, workers who possess social identities already present and accepted in an organization are more likely to be hired than workers whose social identities are not already present and accepted in the organization. Its resulting workforce might then continue not to be representative of the characteristics of the society in which it functions.

Explicitly assessing the gender, age, and ethnocultural profile of an organization’s workforce is the first step in remedying under-representation of equity-deserving groups. Subsequently, an organization is able to establish equity-based targets for hiring and promotion. Achieving these targets might require an organization to identify and remedy the barriers that equity-seeking groups face.