That Success is Achieved Through Mindful Planning Continuous Learning and Constant Collaboration
Given the choice, when would you rather discover that your business strategy is unrealizable: After the fact or while the plan is still on the drawing board? The answer is obvious, of course. Yet a surprising number of executives fail to follow through on its logic. By closing their eyes to the benefits of long-range human resource planning, they heighten the risk of unpleasant, and costly, marketplace failures.
For many of their peers, however, people planning is becoming standard operating procedure. Innovative efforts to manage morale and improve individual and organizational performance complement traditional practices such as staffing forecasts and succession planning at their companies. And links between human resource activities and the strategic planning process are rapidly being forged. Moreover, top-level officers at these companies are likely to credit people planning for its part in boosting profits, even if the contribution cannot always be qualified.
This article provides a firsthand report on the changes taking place in the management of human resources. Drawing on a survey of human resource activities at large companies as well as experience in the field, the author analyzes current practice, illustrates the diversity that characterizes the planning processes at sophisticated companies, and gives readers an inside view of people planning that works.
General Electric had been engaged in formal business planning for several years before it began to take a longer-term view of human resources. In the interim, GE had faced a big problem as its business plans directed corporate resources to new products and technologies. "I didn't realize it at the time [that is, in 1970]," Reginald Jones, GE's former chairman, told me, "but we were a company with 30,000 electromechanical engineers becoming a company that needed electronics engineers. We didn't plan for this change in 1970, and it caused us big problems by the mid-1970s." Partly as a result of this experience, in the late 1970s GE began to ask its managers to plan for its human resource needs.
Similar costly hitches attributable to a lack of "people planning" are easily found. Consider, for example, the experience of a large multinational aluminum company planning to build a sophisticated computerized smelter in Brazil. The new technology had been a great success in the company's home country. But management ultimately realized that in Brazil it would be unable to find or train the computer technicians and service people needed to run such a facility. Plans were then revised at considerable cost to adapt the facility to the local labor force.
A large defense company faced its "people" crisis when it received a demanding government contract for which it had done little personnel planning. The company was forced to drain engineers and managers from other divisions, give them responsibilities far above their competence, and mount a costly rapid-hiring effort. The project survived, but the excess strain and high costs led top management to include a human resource component in its business plans. Since then, the company has also used human resource planning to avoid abrupt layoffs that could adversely affect the whole community.
Partly because of experiences like these, many American companies have begun to plan for their professional, managerial, and technical personnel. The scope of this activity varies widely, of course, and at some companies planning still means little more than head-count forecasts and a succession plan for the CEO. But a growing number of senior executives have been rethinking their companies' human resource planning in two important regards. First, they are supplementing familiar hiring and promotion activities with innovative efforts to enhance corporate performance and boost employee morale. And second, they are forging new links between these activities and their long-term business goals.
How a company forges these links depends in large part on how its management views planning. As we will see, some executives like informal methods, while others prefer written memos and plans. But whatever form the process takes, the most critical element is management's appreciation for the ways in which its human resource decisions affect the company's ability to achieve its business plans—and vice versa. Thus corporate blueprints, however roughly drawn, are likely to contain some version of the feedback loops that characterize my model of the people-planning process.
In the pages that follow, I will examine instances of successful people planning and discuss its implications at greater length. First, however, let us review current practice in the field.
Why Companies Plan for People
The trend toward human resource planning emerges clearly from my survey of planning practices in large companies as well as from other studies and conversations with corporate officers.1 (See Exhibit 1.)
To ensure that the sample would be characteristic of large American companies as a whole, I chose approximately 11% of the 2,625 U.S. parent companies listed in Dun's Directory of American Corporate Families. Each of the randomly selected 291 companies in the sample reported sales of $50 million or more, conducted business from 10 or more locations, and had a controlling interest in one or more subsidiaries.
Because I also wished to minimize the possibility that professional attachments would color the respondents' replies, I directed the survey mostly to line managers, as the following breakdown indicates:
Executives at the sample companies received telephone calls during the summer of 1983. Some 77% replied to inquiries in 20- to 30-minute conversations. While this rate of response would be high in any case, it is especially striking in contrast to the 14% to 50% response rates usually registered in surveys.
Among respondents to my survey, 40% include a human resource component in their long-term business plans. A somewhat larger group, just below 50%, draws up a formal management-succession plan, and a similar proportion prepares training and development plans for managerial employees. In contrast, only 15% of the respondents reported that they do no people planning at all.
Typically, planning horizons fall into industry-related patterns, with formal human resource plans following the time line established by a company's business plan. (Some 89% of the respondents prepare a long-term business plan.) Business plans in construction and service companies, for example, tend to be short term, while in mining, transportation, communications, and utilities, managers are likely to plan five or more years ahead. (Exhibit 2 gives the planning horizons by industry for companies in the survey.)
Exhibit 2 Business Plan Horizons for Sample Companies
I based the survey on the notion that people planning is mainly a matter of challenge and response: companies facing occupational shortages or anticipating major business changes would respond by taking a careful look at their human resource needs. So in interviews I asked managers about their expectations. Were personnel shortages anticipated? Were competitors pressing hard on the company's heels? Were technological changes altering the skills their people needed? If so, then planning would surely follow.
And to a degree this hypothesis is correct: managers who anticipate competitive and technological challenges do plan for the effects of these changes on their people. But other managers, equally aware of coming changes, do not engage in people planning. Challenge alone is not enough to elicit a response.
Corporate size and strategic intent also fail to differentiate companies that plan from those that do not. Larger companies are no more likely to plan than smaller ones; and companies pursuing rapid growth are no more likely to plan than those that are simply trying to hold their own. What then explains the difference?
The explanation, I find, lies less in how a company's managers perceive the challenges facing them than in how they perceive planning. The companies engaged in people planning do it because their top executives are convinced it gives them a competitive advantage in the marketplace. Thus they adopt planning because they believe it makes their company more flexible and entrepreneurial, not because the environment forces it on them.
Managers involved in human resource planning have difficulty understanding how other companies can do without it. "Our growth is related to talent and training," said one executive. "We prepare for the future to eliminate surprises," added another. "It is basic to the planning process," said a third, "because it is easier to save capital than people." "It is our number-one priority," said a bank president, "absolute, unquestioned. It is the most important thing we do in terms of our productivity. How can a company be successful without people planning?"
In contrast, managers who resist planning do so because they believe it is costly and ineffective. They often associate planning with bureaucracy, and many remember unhappy planning experiences from years past. "I've told my staff to quit talking to me about human resource planning," said one executive. "We can't plan for people because we do a miserable job of business planning. And I don't want another nest of strategic planners in the company."
When planning gives the wrong directions or becomes too bureaucratic, of course it deserves to be condemned. But companies that do the best job of people planning usually avoid these problems by keeping the process as informal as possible and leaving the responsibility in the hands of line officers. Moreover, managers who dismiss people planning out of hand may be short-changing their companies and their employees.
During the 1981–1982 recession, for example, more than half the companies in the survey had to lay off middle managers. But those companies in which people planning is most developed minimized these reductions, partly through hiring freezes, attrition, and other forms of advance action.
Similarly, 72% of the survey respondents who practice human resource planning are certain that it improves profitability. And 39%, or more than half of the human resource planners, insist that they can measure the difference on the bottom line. (It is probably no surprise that the companies doing the most wide-range planning are also the most likely to measure quantitatively the impact of their human resource efforts.)
Survey data also allowed me to analyze the profitability of the companies that include human resource goals in their business plans compared with those that do not. Profitability rests on many factors other than planning, of course. Yet on balance, when I compared companies in the same broad industrial categories, those that have such goals in their business plans are the more profitable. Thus the survey corroborates the intuitive judgment of those who link people with profits.
Evolving Processes
For comparative purposes, I grouped the sample companies into five stages, based on three criteria: 1) the number of people-planning elements used in the company, 2) the degree to which human resource plans are integrated into the business plan, and 3) the expressed amount of interest in and commitment to the planning process. The greater the number of elements, the degree of integration, and the degree of interest, the higher the stage to which I assigned the company.
Each stage represents a point along a continuum. At one end are the companies that do little or no people planning; at the other are those that integrate long-range human resource planning into their strategic business plans. The majority of the survey companies fall between these two extremes, as Exhibit 3 indicates.
Exhibit 3 Five Stages in Human Resource Planning
Stage 1 companies have no long-term business plans, and they do little or no human resource planning. Several are family companies and tend to be run paternalistically. Their managers often build morale by traditional methods such as parties and picnics and show little interest in planning. "There are plenty of people in the local labor market," said one executive, "We go on faith."
Senior managers at Stage 2 companies tend to be skeptical of human resource planning, even though each of their companies has a long-term business plan. Some, especially those "managing for survival" in declining industries, think people planning is not very realistic, while others see it in limited terms and equate it with head-count forecasts. "To most companies, human resource planning is basically forecasting," said one executive. Still, a number of Stage 2 company managers see that people planning is becoming more important and believe there is a need to do more.
Respondents at all Stage 3 companies cited several people-planning components in addition to longer-term staff forecasts that project human resource needs three to five years out. For the most part, however, they do not integrate these activities into the long-range business plan.
Stage 4 companies do a good deal of people planning, and their senior managers typically are enthusiastic about the process. "People are our principal asset," said one. "Without good people our company can't do a thing." "A well-managed company must emphasize it," said another. "We should be doing more. We often fall short of having qualified people ready when we need them." All Stage 4 companies practice long-term planning, and 87% have at least one human resource component integrated into the long-range plan.
At Stage 5 companies, human resource components are an important part of the long-term business plan. Almost all do formal management-succession planning, and 94% engage in forecasting activities of some kind. Predictably, all these companies are highly enthusiastic about human resource planning. As one corporate executive commented, "HRP is our number-one priority—the most important thing we do relative to productivity. To get people involved, HRP has to be alive and credible."
To illustrate the differences among companies at various stages, consider the pattern that emerges from the respondents' replies to questions about their hiring and retraining practices. As Exhibit 4 indicates, there is a quite steady progression from Stage 1 companies' focus on hiring and training as needed to Stage 5 companies' emphasis on anticipatory action.
Exhibit 4 Time Frames for Personnel Decisions
Thus managers at Stage 1 and 2 companies tend to hire or retrain people only when they have immediate vacancies, while those at Stage 4 and 5 companies often look as far as three to six years ahead. These differences are marked for scientific and technical positions, and they are even more dramatic for managerial and professional personnel. For example, some large companies have recruited a number of graduating electronics engineers, with the expectation that the payoff from their contributions will come in 5 to 10 years. Thus the managers at these Stage 5 companies seem to be applying the same time frame to their human resource investments that they have commonly used for research and development projects and large-scale capital investments.
Succession planning, or the identification of people to fill key administrative positions, is probably the most widely used building block in human resource planning. And it, too, reflects a full range of responses. At one extreme are the companies that do no succession planning other than replacement planning. At the other are Stage 4 and Stage 5 companies that gain competitive advantage from planning for all their employees, not just top executives.
Despite the widespread use of formal and informal succession plans, only about one company in ten integrates succession into its long-term strategic plan. Apparently many executives conceive of succession plans as nothing more than a way of coping with possible crises such as resignations or serious illnesses. If these executives thought about the plans' potential for orderly career advancement, however, the wisdom of incorporating them in their business plans (which identify opportunities and therefore promotion possibilities) would be obvious.
Beyond preparing for disasters, succession planning has two important advantages. First, it spotlights people in the ranks, potentially enhancing their careers by calling them to top management's attention. Second, and even more critical, it identifies and directs management's attention to possible costly vacancies that cannot readily be filled.
Like all aspects of planning, succession planning has its pitfalls, of course, including the possibility that a key subordinate will be listed for several management slots. But these snares should not deter executives from using them to develop a more competitive work force.
View from Within
Although I have used human resource policies and practices as criteria for categorizing companies, these activities are only building blocks for individual systems. In practice, people planning has many sources and takes various forms, as companies develop distinctive ways to meet their needs, experience, and business strategies.
The ways in which companies link people planning to long-term strategic business planning vividly reflect these differences. For example, some companies request formal human resource plans from their division managers and review them at regional or group-level corporate planning meetings. At other companies, where people planning is woven into day-to-day operations, the link may be nothing more formal than the fact that the corporate vice president of personnel sits in on strategic planning meetings and raises human resource issues.
Even companies that do the most advanced people planning show considerable divergence in their planning processes. Some carefully build the process around sophisticated components, such as computerized personnel-data systems, skills inventories, career and organizational development plans, environmental-scanning and trend analyses, competitive work force analyses, and alternative-future scenarios. In other companies, however, the process may focus on one or two components, such as succession planning or executive selection and development. (The range of planning practices among Stage 5 companies is described in Exhibit 5.)
Whatever form a company's people planning takes, however, the involvement of line managers is a must. People planning may benefit significantly from staff support, of course. Usually, in the best-organized processes, staff people analyze problems and identify options. But in the end, people planning is a line responsibility.
"People and Productivity," a study published by the New York Stock Exchange in 1982, suggests one reason for line managers' involvement. Based primarily on a survey of American industrial corporations, the report identifies 15 common human resource activities. Although some are training matters, a large number, such as individual goal setting, appraisal and feedback, job redesign, quality circles, and so forth, affect the organization's day-to-day relations with its employees. Thus line management has to be part of the people-planning system.
Involvement can occur in different ways, however. Line management may submit a business plan to the corporate staff analysts who then request modifications. Alternatively, the staff may prepare reports on expected developments (such as occupational shortages and surpluses, life-style changes that could affect attitudes and performance, and government regulations) that it circulates to division managers. Then these line officers, with their staff, prepare a plan to deal with the identified issues and send it back to corporate staff for review.
Getting operating managers to invest time in the planning process can be difficult. Helping managers look beyond numbers or head-counts to development, morale, and performance issues, breaking away from job descriptions in thinking about future skill needs, and escaping the tyranny of sales forecasts with their implicit message that people are simply a derived demand are among the problems senior executives cite. To make human resource plans more than shallow appendages to the strategic business plan, however, managers must master these difficulties.
Identifying the payoff from human resource planning in improved organizational performance is one way to try to overcome resistance. If line executives see plans as "a graphics exercise," in GE Chairman John Welch's words, they simply will not support the process.2 Also, managers need adequate information about legal developments, employee mores, and other external factors to plan intelligently for hiring, motivation, performance, and morale.
Significantly, companies that show the highest commitment to human resource planning are also those that share the most information with their managers and are the most likely to help them make sense of their environment. For example, managers at Stage 1 companies reported that, for the most part, they try to keep up with legal, legislative, and lifestyle trends on their own. Conversely, 77% of those at Stage 5 companies rely on their organizations for half or even most of their information.
People Planning That Works
Many companies incorporate human resource goals in their long-term business planning, and about half of those surveyed require staffing forecasts. But few include the development activities and costs that are a crucial part of long-term staffing strategies. Thus the people-planning process is often seriously incomplete.
When planning stops with objectives and short of implementation, the business advantages it provides are likely to be lost. Consider, therefore, how one high-tech company avoided this common pitfall in its approach to a crucial sales-force planning issue.
For years this big company had prospered by hiring large numbers of young liberal arts graduates and giving them extensive training. As product technology advanced, however, salespeople lacking a technical background were less and less able to grasp it. By 1983 management faced an important decision: In the years ahead should the company alter its strategy and recruit more heavily among technical college graduates? If so, how fast should the company move, and how should the transition be managed?
Representatives from marketing, field sales, product development, and personnel formed a task force to devise a program for identifying future sales-force candidates. The assignment proved extraordinarily complicated, and days of discussion followed. A flow chart, prepared to assist the task force's deliberations, demonstrated the complexity of careful human resource planning and the virtue of organizing the process into a series of manageable steps (see Exhibit 6).
Exhibit 6 The Planning Process for a Sales Force Change
The task force began by identifying the chief factors that were determining future salespeople's capabilities. It then used these factors to establish the company's needs and to determine objectives for the sales force. At this point, too, the task force requested an inventory of the company's current sales team to see how it balanced against the identified needs.
Having determined that the company lacked the people it needed, the task force identified its alternatives. This brainstorming phase was a logical follow-up to the forecasting, modeling, and data collection that had gone on before, and it represented the task force's entry into the decision stage. However, at the same time the alternatives made further analysis essential. For example, because hiring from the outside was one alternative, the company had to survey the available job seekers. And because internal development was another avenue, the task force had to know more about the company's willingness to retrain and relocate its employees.
At this point, the task force faced crucial "make-or-buy" decisions. What should it recommend? The decision to look outside for more technically trained people could be easily implemented. But, as the task force realized, its options were also constrained by previous decisions. New hires could strengthen the sales force, but they could not substitute for it. The company had a large number of salespeople already and could not seriously think about replacing them in a short time. What, then, could the company do?
The task force recommended that the company detail technically trained people to sales and supplement them with a large-scale retraining program for the existing staff. Options such as reorganization of the company's sales efforts, job redesign, and changes in the compensation system were held for further study. Implementation of the task force's recommendations occurred during the next three years.
Model Process
Every company organizes its people-planning process in its own way, and some use only parts of the model shown in Exhibit 7. Yet this sequential and idealized version of the people-planning process both accurately reflects current practice at several highly successful companies and reveals the logical order that ties these activities together.
Exhibit 7 The Human Resource Planning Process
As the model makes clear, the most important development in human resource planning is not the creation of many elements but rather their integration into a decision-making process that combines three important activities: 1) identifying and acquiring the right number of people with the proper skills, 2) motivating them to achieve high performance, and 3) creating interactive links between business objectives and people-planning activities.
Thinking ahead begins with a company's multiyear business plan, which establishes both its overall organization structure and goals and objectives for each business. Then the planning process divides to reflect the two factors that make any business successful in human terms.
A company's skill and staffing forecasts are set by both its organization structure and its business goals. Then company managers must decide whether to meet forecasted needs by hiring new people or retraining and reassigning the current staff. Performance appraisals, skills inventories, management succession plans, and equal opportunity programs all provide input for this choice. For current personnel, employee training and executive-development programs come into play, while recruiting projections, advance hiring, and even stockpiling of key talent are used for new hires.
Business goals also generate the productivity and quality requirements that are translated into performance objectives for individuals and organizational units. Designing and strengthening work programs, assessing the corporate culture, and, if necessary, modifying or reinforcing it from the top are among the ways human resource planners target performance objectives. They also adjust wages and benefits as necessary to preserve morale and promote recruiting and retention of employees.
Companies that have the people in place to meet their performance objectives are well-equipped to implement their business plans successfully. If, however, the right people are unavailable or if the performance goals cannot be met, the plans themselves may require revision, as the feedback loops in the model show. Many companies would have spared themselves embarrassing marketplace failures if they had first recognized that the human resource implications of their strategic plans were unrealizable. And in fact, astute managers no longer assume that every plan is doable, nor do they simply derive their people plans from their long-term business plans.
Personnel and skills forecasts are common in business organizations, and this aspect of people planning has received much attention in recent years. Newer and quite important are the human resource activities designed to evoke high performance from individuals and groups within the company. This morale management bodes well for the future, since it is people's performance and productivity that help create the lower costs and higher quality essential for profitability.
The people-planning process described here is taking shape in many companies throughout the country. In some it has evolved, beginning with one or two components and the gradual addition of others. In a smaller group of companies it began in reaction to environmental challenges. But in the largest group by far, people planning has resulted from the leadership, vision, and purpose of top management.
1. See, for example, Harriet Gorlin and Lawrence Schein, Innovations in Managing Human Resources (New York: Conference Board, 1984).
2. John F. Welch, Jr., "Managing Change," dedication convocation, Fuqua School of Business, Duke University, April 21, 1983.
A version of this article appeared in the July 1985 issue of Harvard Business Review.
Source: https://hbr.org/1985/07/planning-with-people-in-mind
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