Strategic workforce planning enables HR and business leaders to identify and anticipate their workforce needs and challenges and take action to ensure the organization is prepared to succeed not only today but in the future.
In this guide, we’ll explore what strategic workforce planning is, how it can benefit your organization, and the best strategic workforce planning tools and framework to help you get started with planning your workforce.
Strategic workforce planning (SWP) is a continual process of identifying gaps in the workforce and developing a methodical people plan to ensure an organization has the employees, skills, and knowledge needed to meet current and future business goals. It’s based on the organization’s long-term strategy and also accommodates for unexpected events and changes.
SWP aims to optimize costs by preventing overstaffing and ensuring that the organization can always deliver on business objectives by limiting the risk of understaffing. It is conducted by HR but led by business and HR leaders.
As explored in our HR Metrics & Dashboarding Certificate Program, the goal of strategic workforce planning is to have a workforce with the right size, shape, cost, and agility.
When developing your strategic workforce planning process, it’s crucial to follow a structured and methodical approach. A strategic workforce planning framework helps you guide this process and visualize where strategic workforce planning fits into your organizational strategy.
Here’s what the four-step SWP framework looks like:
The framework illustrates how strategic workforce planning activities align with the wider picture in a business, for example, organizational strategy. SWP is not the first step and is informed by organizational strategy (step 2). The organizational strategy is determined by several key factors (step 1), including trends in the market, the products and services the company offers, and what competitors are doing.
Step 1 and 2 help business leaders determine where they want the business to go over the next three to five years and beyond. Step 3 helps organizations to see where they are today – the quality and quantity of the current workforce. The final step (4) is where HR creates a strategy based on the insights from steps 1 to 3.
Let’s briefly explore some other notable strategic workforce planning models.
OPM’s workforce planning model consists of five steps and serves as a useful starting point for understanding the elements involved in workforce planning.
What can strategic workforce planning look like in practice? Here are two case studies:
Let’s take a simple example of a company with three product lines. The board of directors has set a number of revenue goals per product line. One of the product lines is growing very fast and is expected to keep growing, while product line C – which used to be the company’s flagship product – is slowly dwindling.
A simple calculation model can look like this. We know the figures for 2023, and based on the potential of the three product lines, we’ve created a revenue goal for the next year, 2024. By putting all these numbers in one overview, we have a relatively simple way of assessing how staff will grow.
| Product line | A | B | C | |||
| Year | 2023 | 2024 | 2023 | 2024 | 2023 | 2024 |
| Revenue | $1.8M | $2.2M | $1.6M | $3.8M | $5.2M | $4.6M |
| Growth in % | 22% | 238% | -10% | |||
| Sales staff | 5 | ? | 5 | ? | 22 | ? |
| Support staff | 2 | ? | 3 | ? | 24 | ? |
As you can see, some product lines are more profitable than others. We don’t know the exact cost of personnel (we can easily calculate this and add it to the model). However, if staffing costs between departments are equal, product line B is much more profitable than product line C. The revenue per employee in B is $1.6 million divided by 8 people, which is a revenue of $200,000 per employee. For C, it’s $ 113,000 per employee.
Based on the growth percentage, you can estimate the growth of staff per department. While the exact numbers are hard to pinpoint, assuming there are no sudden increases in sales and support efficiency, you will have to hire between 12 and 18 people for department B.
Based on this information, you will also know that product line C is unlikely to grow. In fact, the people who will become redundant in product line C could go to B – as long as they have the right skills and experience. If not, you can either retrain them or let them go.
In this scenario, strategic workforce planning helps you discover future workforce challenges. Based on this information, you can already start to retrain a few workers in department C to work for product line B. This will ensure better succession, and you will have people ready when you need them.
Of course, this doesn’t mean you start hiring 18 people immediately. These growth numbers are projections. However, it does mean that you should keep an eye out for the leading indicators for this growth throughout 2024. An example of such an indicator is new product leads.
If the number of leads in January 2024 grows steeply compared to December 2023, that’s a good sign that you need to start hiring immediately so you will have the people to follow up on these new leads in March.
This is a very simple model with only a few factors. We can include much more information, including employee turnover, employees switching product lines, revenue per employee, and function levels or types. This will make our model more complex but also even more useful.
PwC worked with a client who lacked clarity around workforce demand and supply data, with spreadsheets and tools being used in isolation across different teams, as well as inconsistent data from various sources. The aim was to develop and roll out a new people strategy that included all aspects of the employee journey.
To achieve this, PwC established and implemented strategic workforce planning principles across the organization, turning them into guiding “touchstones” for stakeholders. The company also created a custom SWP modeling solution to consolidate and standardize the varied data sources.
The team introduced an SWP decision-making framework, empowering leaders to make evidence-based decisions in recruitment, talent development, and restructuring. They generated SWP reports and plans, analyzing potential workforce gaps over a five-year projection and proposing scenarios to address these gaps effectively.
Let’s discuss these in more detail.
Workforce planning starts with the current employee formation and answers the question of what people and skills a company currently has.
There are two areas to explore when gauging the current formation of the workforce: the quality and quantity of the workforce.
The quality of the workforce is about current performance and future potential. High performers and high-potential employees are people who either perform very well today or who are expected to perform very well in the (near) future.
Assessing the quality of the current workforce lays the groundwork for effective talent management, which is capitalizing on the full potential of your employees. To achieve this, companies invest time and money to enable their people to perform at their best and work toward reaching organizational goals.
The first step of the analysis of the current workforce formation is to assess the quality of the workforce. Employees are rated on their current performance and future potential. A good example of this is the 9 box grid framework, which helps map the workforce and enables HR to effectively manage talent.
Part of the strategic workforce planner’s role is to map out what the future will look like, which includes consideration of market trends and emerging capabilities.
If, for example, a company wants to expand its machine learning capabilities, performance and potential today do not equate to performance and potential in the future. Mapping employee potential against a diverging path is much more challenging.
A simple workforce planning exercise like this can be useful to structure a complex process like talent management.
The next step is to assess the quantity of the workforce using a personnel flow matrix. This matrix includes new hires, employee turnover, and internal promotions.
As you can see below, this matrix divides employees into four categories: top management, middle management, production staff, and support staff. The matrix shows how many employees from each category were there on 1/1/2023 and how it changed by 1/1/2024. For example, there were 45 people in top management (category A). 28 of these remained until 1/1/2024, 15 quit, and 2 were demoted to middle management.
| Employees per 1/1/2024 | ||||||
| Employees per 1/1/2023 | A | B | C | D | Turnover | Total |
| Category A (Top management) | 28 | 2 | 0 | 0 | 15 (33%) | 45 |
| Category B (Middle management) | 10 | 80 | 6 | 0 | 19 (17%) | 115 |
| Category C (Production staff) | 0 | 3 | 860 | 2 | 35 (4%) | 900 |
| Category D (Support staff) | 0 | 0 | 3 | 40 | 7 (14%) | 50 |
| New hires in 2023 | 12 | 25 | 136 | 12 | N/A | 185 |
| Total employees (% growth) per 1/1/2024 | 50 (10%) | 110 (-4%) | 945 (5%) | 54 (8%) | N/A | N/A |
This model shows risk factors in the organization. In this case, turnover among top management is dangerously high. It also shows internal mobility and external mobility and provides an overview of the biggest changes in the organization.
This model is fairly simple. You can add additional information (like the total of internal replacements), change categories into different departments, and filter the data based on employees with different attributes or skill sets. It would, for example, provide a great overview of gender diversity in internal mobility if you compare this overview across genders.
The data can also be filtered based on the type of function. Not everyone in the organization is mission-critical. Focusing on critical functions, for example, would make sense. These are the 20% of the organization that account for 80% of its results.
It’s good to know where you stand with your workforce today. However, to be ready for the future, it’s essential to anticipate what may be ahead and create different plans of action that your business can be follow in different scenarios.
A great example of this is the streaming company, Netflix. They began as a DVD rental company in 1998 and were the main rival to Blockbuster. With Netflix, customers could subscribe to the service and gain access to unlimited DVDs, which would be posted out to their house, and then sent back.
Anticipating a move to a fully digital experience, the founders had the idea of streaming very early on and reportedly looked into creating it sooner than they actually started with it. However, the limited internet speeds of that time meant that it wasn’t technically feasible.
But in 2007, Netflix finally launched its streaming service in the US, gradually launching in other countries. It started to produce its own content and ultimately became the first streaming success story. Meanwhile, Blockbuster failed to anticipate the future and adapt and sadly went out of business.
Had the technology not been there, Netflix would have continued to stall on their streaming plans and continued with their DVD rental service, but may have still ventured into producing their own content.
The last step is to analyze the future formation of the workforce. There is a difference between the expected formation and the desired formation.
The expected formation is the formation in three to five years based on the company continuing to do what it is currently doing. The personnel flow matrix we showed earlier is helpful in this as it enables us to extrapolate these numbers over a longer period of time. However, the question is whether the future expected formation is in line with the desired formation.
An example of future desired formation is the transport sector. A recent report by the International Transport Forum estimates that the demand for drivers will be reduced by 50-70% in the US and Europe by 2030.
Trains are capable of autonomous driving, and the role of the train operator has been reduced to someone who needs to be there in case of emergencies. Within a couple of years, there might not be a need for the operator at all.
These kinds of developments are challenging for the workforce. The expected formation will tell you that your train operator workforce will still be significant in 2-3 years. However, their job will be automated by then, so your desired formation will be very different.
Knowing this gap will help you solve it. In unionized countries, it will take a long time before these jobs can be removed. However, anticipating what lies ahead through smart workforce planning will help you prepare for these challenges and take appropriate action at the appropriate time.
Here are some of the common SWP tools and how to use them.
The 9 box grid (also known as a performance-potential matrix) helps map employees’ performance and potential in one place. Employees are mapped into different categories, for example, “talent risk” to “consistent stars.” These categories are based on whether they are low or high performers and have low or high potential in the company.
From here, you can make key decisions on who stays, leaves, and is promoted in your organization.
Another strategic workforce planning tool is the HR dashboard. This typically shows information from various sources, including payroll, your ATS, and other HRISs. From this cumulative data, you can calculate, analyze, and report on HR metrics. The goal is to create a single overview of the current status of your workforce, helping you inform decisions about the future.
Compensation and benefits data is structured, accurate, and directly related to bottom-line performance. That’s why an analysis of this can be insightful.
To conduct a simple analysis, set an internal pay benchmark and group people into categories of overpaid and underpaid. Use performance data to categorize employees into overperforming and underperforming.
Ideally, your overperformers should be the ones who are overpaid, and your underperformers should be underpaid. If this is not the case, you can risk losing your top performers while holding onto your poorest performers.
Scenario planning helps you visualize different scenarios that may occur in the future so that you won’t be caught out and are prepared to deal with a variety of situations.
This technique involves imagining different (unexpected) potential futures that would have a significant impact on the organization. This could be due to factors like advances in technology, legislation changes, market changes, natural disasters, and more.
The next step is to describe the impact each scenario would have on the business and create a strategy for how you would deal with such an event.
Strategic workforce planning ensures that businesses have the right people in the right jobs at the right time, today and in the future. Knowing the strengths and weaknesses of your current workforce capabilities, understanding the long-term goals of the company, while forecasting future scenarios enables you to successfully plan and maintain a solid competitive advantage.
Strategic workforce planning is an HR activity that helps organizations ensure they have the right employees with the right skills, knowledge, experience and attributes to meet current and future business goals, and accommodate for unexpected future trends and changes.
What are the major objectives of strategic workforce planning?The major objectives of SWP are to prevent overstaffing and understaffing as well as skills gaps in your organization, and prepare for the future. It helps you to more effectively manage your talent, be more flexible, and mitigate risk while optimizing labor costs.
What does strategic workforce planning involve?SWP involves assessing where you stand as a business today, understanding your current workforce, and being aware of what’s going on in the market. This helps you create a strategy for where you want to go in the next 3-5 years, and what you need to do to get there in terms of your workforce capabilities. From here, you can create a plan of action, and start to implement it.
