chapter 6 - planning - 8th edition
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Chapter 6: Ascertaining HR Supply
Figure 6.1
HR supply determines the sources of the organization's human capital
requirements. [1]
Learning Outcomes
L.O. 6.1
Understand the relationship between demand and supply forecasting techniques in the HR planning process.
L.O. 6.2
Understand why human capital plays a critical role in implementing strategy and
describe how to manage the supply of that human capital.
L.O. 6.3
Discuss and evaluate the advantages and disadvantages of the following specific methods of determining external and internal supply: skills and management inventories, Markov models, linear programming and simulation, movement analysis, and vacancy/renewal models.
L.O. 6.4
Recognize when an HR gap may be filled through substitution strategies such as automation, or when the gap may be attributable mostly to the bullwhip effect.
Introduction
Indigenous Peoples: A Growing Labour Source
Economists who analyze labour supply will often look at unemployment rates by province, by occupation, and by designated group. These numbers give them an idea of where potential supplies of labour exist. Canada’s Indigenous population is the fastest growing population in Canada, which means it is a potential source of labour now and in the decades to come. However, in 2021, Indigenous peoples had an unemployment rate of roughly 12.5 percent compared to about 7.5 percent in the general population. This high rate of unemployment is due to particularly low levels of education and a younger demographic. And yet, nearly 80 percent of employers believe that the employment of Indigenous peoples is necessary to deal with labour shortages.
What can employers do to attract and retain this pool of labour? Organizations like Mikana, centred in Montreal, have a mission to help organizations to decolonize social and organizational culture (Mikana n.d.). This involves, but is not limited to giving attention to Indigenous voices wherever possible, recognizing and de-centring the colonial roots of our existing systems, and allowing a culture to form that is collaborative and based on the experiences of all participants (Collège Ahuntsic 2021).
As shown in Video 6.1, Pimee Well Servicing, a 100 percent Indigenous-owned company with a 98 percent Indigenous workforce, has been providing well servicing and general maintenance services to the oilfield industry for many years.
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Video 6.1
Indigenous Company and Workforce [2]
Sources: Statistics Canada (2022); Silliker (2012); Klie (2011)
In Chapter 5, Determining HR Demand, we examined a variety of methods used to forecast HR demand. Many of these procedures (e.g., trend analysis, simulation, Delphi technique, and nominal group technique) can also be used to determine the supply of human capital.
6.1 Importance of Job Analysis in Forecasting Labour Supply
6.1.1 Internal and External Human Capital
Human capital can be obtained from a source that is either
internal
to the organization (current employees) or
external
(individuals currently not employed by the organization), or, more commonly, from a combination of these sources. Many organizations give preference to internal supply, because selecting these individuals for training and development, and subsequent promotion, enables the organization to reinforce employee loyalty and performance. Other reasons for giving preferential consideration to
your own workforce to fill job openings include the following:
1.
Current employees are already socialized to the norms, rules, and procedures of your organization, and so organizational fit is ensured.
2.
The employer possesses detailed knowledge (as listed on its human resource management system skill inventories) of the employees’ performance and knowledge, skills, abilities, and other attributes (KSAOs) over time (e.g., work history and experience).
3.
Internal labour markets provide employees some protection from economic downturns, as employees can move from one job type to others.
When job analysis is done properly throughout the organization, it uncovers all the KSAOs/competencies that are performed, and identifies in what jobs or other capacities those KSAOs/competencies are performed. This inventory is instrumental in determining
training needs, and in performing a gap analysis between the strategic organizational KSAOs/competencies required to implement the firm's value proposition and the KSAOs/competencies that are currently present within the organization.
A strategic analysis can uncover the most important tasks or activities at the organizational level that are required to implement the value proposition, and the critical KSAOs or competencies necessary to perform those tasks or activities can be inferred.
A gap analysis compares the KSAOs/competencies that are present within the organization with those that are necessary to implement the value proposition, and adjustments to the organization's stocks of human capital and HR practices may then be made.
For example, if a retail bank performs a strategic analysis and determines that high levels of teamwork and an understanding of all the retail branch jobs are important for ensuring that customers' service needs are properly attended to, the HR function can examine the extent to which teamwork is captured in its selection testing, and knowledge
of branch jobs is incorporated into its employee training, and adjust these practices as necessary. This type of analysis can also help the firm to prioritize its human capital needs.
6.1.2 Segmenting the Internal Supply of Human Capital
With the popularity of news headlines focusing on the skills gap for highly skilled workers, and the forecasted labour shortage issues in Canada in the coming decade, it is
clear that organizations can benefit from placing increased importance on the management and internal supply of human capital. What this implies is that rather than focusing solely on recruitment when a need is identified, firms should start looking at the kinds of human capital skills or competencies that are critical to solving organizational problems or that are key to implementing the firm’s strategy, and implement policies that aim to retain and develop these critical skills.
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Figure 6.2
Salespeople can be segmented based on their unique combinations of
preferences for a firm's employment contract. [3]
However, employees working in the same job, who hold similar sets of skills, may have very different objectives when it comes to how the current job fits into their own career objectives. When different groups of employees work in the same job but have different work or career preferences, it may be possible to retain or develop more than one of these
employee segments
with HR programs. Consider salespersons working on the floor at one of the major clothing sales chains, such as the Gap, or J. Crew (Figure 6.2). Some of these employees are there for the long haul; they love the company, its products, its values, and the experience that it provides for its customers. These employees would love to work for the company for as long as they can imagine, and possibly even manage their own store one day or buy their own franchise. But there are several other segments of employees working the floor as well. Some employees are using the job to help pay their way through school, and intend to move into a different field once they graduate. Other employees don’t want a full-time job, and enjoy the casual nature of their work as well as the opportunity to be flexible with the number of hours they work per week and when they work those hours. Still other employees might be retired and looking for part-time work that provides a social experience and the opportunity to be active.
Each of these groups of employees can be segmented based on their unique combinations of preferences for the employment contract at the firm. All these employee segments add value to the firm, and excellent workers can be found in all segments. However, if the company is recruiting for, selecting, providing benefits, and rewarding only the segment that strongly identifies with the firm for the long haul, then it is ignoring the needs and desires of all the other existing human capital segments. If the firm only hired sales staff from the long-haul segment who want to work full-time and progress through the company, then it is creating a host of unforeseen problems relating to finding
people to work part-time or odd hours, as well as creating career development problems,
as there is no way to provide developmental opportunities and career progress for all the
sales staff.
Researchers suggest that firms should understand each of the employee segments that comprise their human capital contingent, and provide HR practices that appeal to each of
these segments in unique ways (Boudreau and Jesuthasan 2011). That way, firms can influence and thus ensure a strong supply of human capital from each of these segments. Boudreau and Jesuthasan (2011) propose three questions to understand and
influence supply:
1.
What are the critical human capital segments?
To answer this question, HR practitioners must have a clear understanding of the organizational activities that bring value to the customer. These activities are what the firm does to differentiate itself in the market, and the employees who are involved in the performance of those activities
and the delivery of that value are critical to firm success. HR planners should determine the most relevant attributes to use as a basis for segmenting critical human capital; these attributes could take many forms, including differences in benefits preferences, flexible work options, or differences in reasons for working at the firm. Knowing how to appeal to different segments of critical human capital will lead to a stronger applicant pool and help the firm design policies that appeal to each employee segment as needed.
2.
What response do we need from each of these segments?
Let’s take as an example a firm that expects the demand for HR managers to
increase along with expected organizational growth. After graduating from college or university, it might take an HR professional five years or more working within the HR function to develop the skills to become an HR manager. Another path to becoming an HR manager in the firm might be to work for five years within one of the business lines of the firm, formalize one’s HR knowledge in an HR-focused master’s degree program, and then move into the HR manager role. This path might take five to seven years. By segmenting these human capital requirements by demographics, the firm can understand how to influence the supply of HR managers over the next decade by determining what proportion of existing HR managers may be considering retirement, how many recent graduates are entering the HR
function, and what proportion of HR managers are coming from the business lines with an advanced HR degree. With an estimate of demand for HR managers, the firm can model whether and how to meet
that demand from internal sources. For example, if policies were put in place to persuade 25 percent of HR managers who are contemplating retirement to remain in the job for an extra two to five years, if policies were used to increase the proportion of millennials in the applicant pool by 10 percent, and if managers outside the HR function who were interested in working in HR were offered a subsidy to help pay for an advanced HR degree part-time while working, how would the supply of HR managers change over the next five years?
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3.
What features of the employment deal create the best response at the lowest cost?
Looking at our example of influencing the supply of HR managers by segmenting according to demographics, we see that there are different costs associated with each of our options. We should
include among those options external hiring, where we seek to hire candidates who already possess all the skills or competencies needed to fill the HR manager job. The costs associated with each of these options can be calculated, and the question becomes a relatively simple
optimization problem of reducing the risk of running low on HR managers by combining our options to arrive at the lowest cost and lowest-risk solution.
While the HR manager job was segmented by demographics, the salesperson job at the clothing store discussed earlier was segmented by features of the employment contract. By segmenting according to preferences for organizational identification and commitment, the clothing store can optimize its supply of full-time, part-time, and occasional workers to balance scheduling needs. Segmenting workers along unique sets
of attributes that make the employment contract attractive allows forecasters to better understand and model how to influence the supply of each of these employee groups. Policies such as recruitment and retention strategies that appeal to these unique segments provide the means through which planners can influence the supply of human capital.
When firms do not have the policies in place or the resources to provide an adequate supply of human capital from within, adequate supply must be found outside the firm. When supply is inadequate, the result could be due to a labour shortage, where there simply are not enough workers for the number of jobs available, or to a
skills gap
, where there is an insufficient number of workers who possess the skills necessary to perform the job (refer to HR Planning Today 6.1.1). We now turn to an examination of some of the mechanisms that influence the external supply of human capital.
HR Planning Today 6.1.1: What About the Skills Gap?
Canadian news stories about the skills gap lead us to believe that there is a shortage in the supply of high-skilled Canadian labour. A 2016 survey for the Canadian Internet Registration Authority (CIRA) found that despite having competitive recruitment and selection practices, almost 50 percent of the information technology (IT) companies
surveyed claimed they had had trouble filling IT positions in the previous year.
Few organizations have the capability to measure the cost of not hiring a worker for a year, and if they could, they might take stronger steps to avoid these kinds of gaps.
Are skills gaps real, and if so, what are the causes and cures? Some research suggests that the skills gap is limited to particular geographic regions or knowledge sectors. For example, the insurance industry lacks sufficient numbers of claims managers, claims handlers, and actuaries, and some skilled trades such as boilermakers, machinists, and heavy equipment handlers currently face a skills gap. However, for many jobs, research suggests that a large portion of the gap may be brought on by organizations. Firms that do not have a development pipeline, that spend little on training, and that are dependent on external hiring for most skilled workers are especially at risk for not being able to hire adequate numbers. Another contributing factor to an inflated gap is found in the recruitment and hiring practices popular in firms today. Rather than selecting based on knowledge, skills, abilities, and aptitudes derived from job analysis, many firms prioritize work experience as a minimum qualification. When an organization is looking for an applicant with three to five years of experience in the job, how realistic is it to expect that an employee who has been working the same job but in another organization for three to
five years will be willing to forego their firm-specific human capital to go work for roughly the same pay in a different organization? If firms want to pay the market rate or lower for an employee with several years of experience at the job, it is not surprising that the job advertisement yields an applicant pool that does not match its requirements.
Firms that want to avoid unfilled jobs over the long term need to align their strategic activities with their critical talent segments, and incorporate training, development, and retention strategies to reduce their need for external hiring. Firms need to appeal to their critical talent segments with HR practices that draw a larger applicant pool, and should consider paying above-market wages for the talent segments that are critical to implementing firm strategy.
Source: Cappelli (2012);
Canadian Internet Registration Authority (CIRA) (2016)
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6.2 HR Supply Programs
6.2.1 The Role of Employers in Influencing Supply
If employers cannot find a sufficient supply of labour for certain jobs, they can either change the nature of the job, train workers themselves, or look at other labour pools. Jobs that are difficult to fill can be made more attractive. In one country, locals were unwilling to apply for construction jobs because they saw the work as dangerous, difficult, and dirty, in an unsafe and uncomfortable environment. Where possible, companies could try to either change the work conditions or change the perceptions of these jobs. Alternatively, managers could train the types of workers they need. For example, the Work Based Learning Consortium, a group of manufacturers, is hiring young unskilled people and training them (with both classroom and on-the-job experiences) for jobs such as machinists (Work Based Learning Consortium n.d.). However, Canadian organizations have a relatively poor track record in training employees, compared to other countries. As depicted in Figure 6.3, according to a survey of executives in 27 countries, only 38 percent of businesses in Canada offer training to teach technical skills to employees in the highly desirable STEM areas (science, technology, engineering, and math), compared to 51 percent in the United States and even more in Colombia and Malaysia.
According to Canadian executives, the
problem is that they don’t know what skills the workforce will need to remain competitive in the near future (Gault 2014).
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6.2.2 Other Labour Pools
This chapter opened with examples of companies hiring Indigenous peoples in the workforce. Organizations facing shortages could make targeted efforts to recruit from the
labour pools of the four designated groups, or from other stigmatized groups. Another employment source that has only recently begun to be utilized is the neurodiverse community. Neurodiversity refers to neurological differences that are recognized as natural human variation. These differences include descriptors such as autism and Tourette syndrome (Syracuse University 2011). Organizations such as the German software company SAP have made commitments to increasing their hiring rate of neurodiverse individuals to reflect the observed representation in the population, which is
around 1 percent (McCullough 2017). In order to hire neurodiverse individuals or members of any of Canada’s protected groups, organizations should use HR practices that incorporate job analysis in order to understand all job-relevant attributes of the work,
develop science-based selection practices that seek to reduce bias and control for other errors, and provide realistic job previews so that working conditions are well understood beforehand. Job analysis plays a critical role in removing bias in expectations around what is required to perform a job, and in changing mental models around the general attributes necessary for the job or workplace that may persist and that do not hold any relation to actual job requirements.
In Video 6.2, Dr. Nancy Doyle, an authority on neurodivergence and the workplace, discusses the benefits of hiring, developing, and retaining neurodiverse employees
Video 6.2
Benefits of Neurodiverse Individuals in the Workplace [4]
HR Planning Today 6.2.1: Attracting Older Workers
By 2036, roughly 25 percent of Canadians will be 65 years old or older. A survey of 1,500 older workers (50 and over) revealed that older workers (Figure 6.4) desire many of the same things that other workers rank as important:
Figure 6.4
Workers who have retired are a good source of labour, particularly if the
schedules are flexible. [5]
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1.
Learning and development opportunities
2.
Job autonomy
3.
Recognition and respect
4.
Mentoring opportunities
5.
Social support and a supportive organizational climate
6. Compensation
Sources: Chen and Gardiner (2019, 1318–1335);
Armstrong-Stassen (2008, 38–44); Employment and Social Development Canada (2016).
6.2.3 Influence of Government Programs
Governments control the supply of labour in many ways. Provincial governments, for example, determine the number of places available in professional programs, such as nursing, and trade apprenticeships, such as electricians. Working through their employer
associations, organizations could lobby the government to increase the number of training programs or the number of students in the programs. The government also plays
a key role in determining the number of immigrants admitted to Canada. By increasing the spaces available to qualified professionals and tradespeople, the government can alleviate demand for these workers in targeted occupations. However, academics state that these are short-term solutions. While it seems sensible to increase the number of pipefitters and welders through government programs, what happens 20 years later when there are no jobs for these workers? This was the case for construction workers in Alberta (1982), and has been the case for auto workers in Ontario since the early 2000s. What is needed, they argue, is a flexible, adaptable worker (Hirsch 2014; CBC News 2015).
However, there remains a shortage of Canadians who are available to work. For example, Statistics Canada estimates that at the end of 2021, there were over 900,000 unfilled jobs, mostly in health care; social assistance; retail trade; and professional, scientific, and technical services (Statistics Canada 2022a).
6.2.4 HR Retention Programs
Any presentation on HR supply would be incomplete without a discussion of the need for
organizations to monitor and control levels of absenteeism and employee turnover. It may be helpful to think metaphorically of the organization’s supply of employees as the level of water in a bathtub. Even with the water taps fully open and water pouring into the
tub, if the drain plug is not in place, inevitably we will soon be looking at an empty tub! Organizationally, even if we are highly successful in
recruiting
a large number of highly skilled applicants (a situation that is increasingly rare for most organizations, given
demographic and competitive factors), if we are unable to
retain
experienced, high-
performing employees, we face dire consequences, not only in the short run in failing to achieve desired organizational goals but also, perhaps even more critically, in terms of an inadequate HR supply and lost opportunities for future succession. Apart from normal levels of retirement and voluntary turnover, high levels of involuntary turnover normally signify a mismatch between the individual and the organization (McBey and Karakowsky 2000, 136–144). Attention should be paid to selection procedures to ensure that the individual possesses the proper skills and competencies, as well as to orientation and training and development to ensure that employees are provided with clear guidance with regard to their employment and desired performance levels.
With continued labour shortages, retention programs are no longer an option for most North American companies; they are fast turning into a key requirement for organizational survival (Kohl 2000, 2). The costs of replacing current workers and acquiring new ones can be staggering. Apart from “hard” costs (e.g., advertisements, headhunter and recruiting fees, interview training and travel costs, administration expenses, cost of lost production, bonuses or increased salaries acting as inducements to join, and so on), there are also the “softer” elements (such as lost business and customer contacts, decreased quantity or quality of work due to training and learning-
curve gaps, orientation and training time, decline in team morale and productivity, and increased turnover due to the “follow me” effect) to consider. It is estimated that the cost of replacing a trained worker ranges from 70 to 200 percent of the departing person’s annual salary (North et al. 2005, 49–62; Kohl 2).
Organizations that demonstrate flexibility and a genuine effort to assist their employees are perceived to be more attractive places to work (refer to HR Planning Today 6.2.2 for an example of how one company seeks to avoid layoffs). Retention can be greatly facilitated by offering effective communication programs; maintaining an enjoyable and collegial work atmosphere; designing meaningful jobs; formulating and administering performance and compensation systems that identify and differentially reward better performers based on clearly communicated criteria; and offering more flexible and attractive work arrangements (e.g., flex time, telecommuting, cafeteria-style benefit plans). Mentoring programs have also been found to be highly effective for retention through positively influencing individual commitment and potential for career success, and thereby reducing turnover intentions (Gram 2004; Joiner, Bartram, and Garreffa 2004, 164–171). Human capital is a potential source of competitive advantage that can make the difference between organizational success or failure (Lofgren, Nyce et al. 2002, 22–29), and retention programs can help to reinforce this competitive advantage.
HR Planning Today 6.2.2: Retention of Highly Skilled Workers
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Figure 6.5
Hitachi Construction Truck Manufacturing wants to implement a no-layoff
policy in order to keep skilled workers employed during slowdowns. [6]
Some sectors, such as construction, experience cycles of high demand followed by low market demand for products. The typical policy of companies in these sectors is to lay off
workers during the slump, and hope to rehire them when demand resumes. However, experience has shown that some of these workers become discouraged and find other jobs. If they were easy to replace, this would not be a problem. But some of these workers are highly skilled, such as mechanics, with five years of apprenticeship and experience forging them into productive employees. Companies also find that during, for example, a nine-month layoff, employees’ skills begin to deteriorate and they must be retrained upon their return to work. So, what is the solution?
Hitachi Construction Truck Manufacturing in Guelph, Ontario, thinks it knows (Figure 6.5). This company manufactures large trucks used in mining and employs about 200 people in manufacturing and another 180 in the office. The company wants to institute a no-layoff policy and keep their skilled workers employed during slumps. Toyota has the same policy for its workforce in America, with plans to keep workers and assign them to training and other activities during a 14-week layoff, at a cost of 50 million dollars. Recognizing the cost of a no-layoff policy, Hitachi has asked for financial help from the government.
Sources: Doorey (2008); Keenan (2014); Lovell (2013).
Organizations are beginning to apply operations and marketing principles by segmenting
human capital according to sets of desirable employment attributes. In the same way that firms have applied ideas such as fast response and mass customization to consumer products, so too are firms looking at mass customizing the HR experience based on human capital talent segments. Mass customization can be seen every day in products like the Apple Watch, where Apple has gathered market intelligence to determine that customers tend to care about some combination of watch face size, watch material, strap material, strap colour, and price. Customers looking to buy an Apple Watch can select any combination of attributes they desire and build their own unique watch that suits their personal preferences.
Mass customization in HR
refers to the way in which the major attributes that influence the employee relationship with the firm can be blended and moulded to suit the individual needs of the employee. Not only offering policies such as flexible work arrangements, core working hours, telecommuting,
cafeteria-style benefits, but also allowing employees the individual freedom to select how
to receive these policies, and even to select the mix of fixed and incentive pay, all contribute to mass customizing the employment experience. Mass customization of HR is intended to help maximize the employee experience and ultimately enhance retention. Organizations are increasingly facing HR supply and retention problems, which will prove increasingly costly given looming demographic shortages in the labour
force (Cocolakis-Wormstall 2018). Refer to HR Planning Notebook 6.2.1 for more recommendations for retaining employees.
HR Planning Notebook 6.2.1:
Recommendations for Retaining Employees
Organizations cannot afford to lose experienced, talented employees. Given that highly qualified, high-performing staff will always have alternative employment options, what are some of the steps organizations can take to help attract and retain talented employees? The following recommendations are drawn from the research literature:
1.
Train managers in strategies for the retention of employees, and hold them accountable for retention.
2.
Pay is not the main reason for losing talent; pay attention to “toxic” bosses and co-workers, bad management practices, and a lack of autonomy and respect at work.
3.
Implement flexible working arrangements to facilitate work–life balance (e.g., flexible work hours, compressed workweek, telecommuting, job sharing, daycare centres, and so on).
4.
Reward fairly, consistently, and differentially on the basis of performance and results. Give recognition to employee preferences for different types of work benefits (time off, non-monetary rewards such as
travel or goods, tuition assistance, pension plans, life insurance, and so on).
5.
Hold regular feedback and career development discussions with your employees.
6.
Recognize that talented, highly motivated employees do not view training as a discretionary item that should get cut during the first round of annual budget reviews!
7.
Deal with “slackers” and underperformers. Talented employees resent being burdened with additional stress and workload.
8.
Reward organizational seniority in addition to rewarding performance.
9.
Identify “high turnover risk” occupations, classifications, and personnel, and develop appropriate talent retention strategies.
10.
Develop a managerial academy to teach talented employees the technical and interpersonal skills necessary to assume higher managerial positions in the future.
11.
Review and pare to a minimum the following potential “dissatisfiers”: rules, regulations, micromanagement, policy manuals, meetings, and so on.
12.
Take action on talent management; don’t just meet, discuss, or prepare a report.
Employee retention will soon become the number-one priority for HR professionals.
Sources: Frank and Taylor (2004, 33–42); Greenwald (2004); HR Focus (2004); Helton and Soubik (2004, 459–474); Trank, Rynes, and Bretz (2002, 331–345), Hay (2002, 52–
56); Langan (2000, 461–478)
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6.3 Methods for Modelling the Supply of Human Capital
6.3.1 Skills and Management Inventories
The first step in supply analysis is an examination of the number and capabilities of current employees. Skill inventories and management inventories contain information on the capabilities of your employees (Buhler 2004, 20–23; Martin 1967, 28–30; Kaumeyer 1979). A
skills inventory
is an individualized record held on each employee except those currently in management or professional positions. Typically, a skills inventory contains information for each individual on select areas, presented in Figure 6.6 below.
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This skills inventory record is entered into the organization’s human resource management system (HRMS) database and can be searched when looking for people with the skills and competencies required by a specific job. For this reason, skills inventories must be kept current, and employees should be given frequent opportunities to update or correct their personal entries; otherwise, an employee may not be considered for a job that they could fill successfully.
Management inventories
can be considered to be enhanced skills inventories, because they contain all the above information as well as the following:
1.
A history of management or professional jobs held.
2.
A record of management or professional training courses and dates of completion.
3.
Key accountabilities for the current job (i.e., organizational resources, including the size of the budget controlled, number of subordinates, important organizational outcomes for which the incumbent is primarily responsible).
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4.
Assessment centre and appraisal data.
5.
Professional and industry association memberships.
Only when an organization has a properly maintained HRMS, complete with the skills and management inventories described above, is it really able to assess correctly the numbers and competency levels of its current workforce. In this way, HR planners can determine the organization’s workforce strengths and weaknesses and plan training and development courses accordingly, while noting which job openings must be filled from external sources because current employees lack the skill competencies required.
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6.3.2 Markov Models
Markov models are the most popular technique used for contemporary supply-side HR planning applications in medium-sized to large organizations (Bechet and Maki 1987, 209–217; Konda and Stewman 1980, 276–301; Weigel and Wilcox 1993, 281–306). Organizational size is a factor in the decision to use Markov modelling because the process involves estimating the probability of moving from one job to another. Estimates of employee movement can become highly unreliable in small firms. These models are widely used in both educational and human capital planning processes (Bartholomew 1973; Law 1977, 269–275). Furthermore, they have been found to be most useful in stable work environments where career paths are better defined.
A
Markov model
, also referred to as a
probabilistic
(using probabilities of various movement options) or stochastic model (Meehan and Ahmed 1990, 297–307), determines the pattern of employee movement throughout an organization’s system of jobs using a set of mutually exclusive states for movement into or out of a particular job (Heneman and Sandver 1977, 535–542; Vassiliou 1976, 57–70). Markov analysis produces a series of matrices that detail the various patterns of movement to and from the wide variety of jobs in the organization. As such, it provides a method to model the flow of human capital between jobs within the organization to give a deeper understanding of how employee movement affects the supply of human capital beyond a
simple estimate of turnover rates. According to researchers (Gans and Zhou 2002, 991–
1007; Bechet and Maki 1987, 209–217), when considering
employee movement
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patterns
in the organization, there are five mutually exclusive states in which an employee can reside:
1.
Remaining in the current job
2.
Promotion to a higher classified job
3.
A lateral transfer to a job with a similar classification level
4.
Exit from the job (e.g., termination, layoff, voluntary leaving by the employee)
5.
Demotion (which is relatively rare)
Markov models do not examine individual employees but instead examine overall rates of movement between various job levels, and this movement between jobs is based on historical movement patterns (Blakely 1970, 39–46). It is normally assumed, for calculation purposes, that the pattern of employee movement is relatively stable over time. If this is not the case, then adjustments have to be made to the historical data to allow them to be used for HR planning in the present day. Markov model data should be based upon movement during “typical” business operations. However, if environmental conditions change dramatically, the information should be adjusted, using the HR planner’s best judgment. It is important to note that Markov techniques depend on stable transition probabilities, so dynamic and unstable environmental scenarios may preclude the effective usage of Markov models (Stone and Fiorito 1986, 635–642). Refer to Table 6.1 for an example of a Markov Model.
There are three main steps to using a Markov model for HR planning purposes:
1.
Collect historical data on mobility rates between jobs in the organization (many organizations collect data on turnover rate, promotion rate, and rates of lateral transfers and demotions).
2.
Based on these data, develop matrices to forecast future movement between jobs.
3.
Use the forecasts of the model to analyze HR policies and programs, and instigate the necessary adaptive measures (Zeffane and Mayo 1995, 6–17.).
Video 6.3 provides an overview on the use of Markov analysis in HR planning.
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Video 6.3
Markov Analysis
[7]
Now that we understand the purpose of Markov analyses, let’s try an example of Markov
analysis using the data in Table 6.1. The matrix shows five jobs over two time periods: the current state, which is shown as Time 1 and is represented by the first column of numbers; and the expected future state, which is shown as Time 2 and is represented by
the remainder of the matrix.
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Table 6.1
Markov Model (Note: The probabilities (percentages) of various movement
options are expressed horizontally and sum to 1 (100 percent).) (For accessible table
please refer to Content for Accessibility folder.)
At Time 1, there are 100 kitchen staff, 150 servers, 50 hosts, etc., for a total of 400 workers. The rows of the matrix represent the probability of movement from one job state
to another from Time 1 to Time 2. The first row, which includes the transitional probabilities for kitchen staff, shows that our historical expectation is that 40 percent of kitchen staff stay in their job from Time 1 to Time 2, while 10 percent of kitchen staff move to server jobs, 5 percent of kitchen staff transition to hosts, 15 percent of kitchen staff transition to food prep jobs, and 30 percent leave the organization. The numbers below the percentage listings show the expected numbers of employees who will transition from one job state to another. For example, of the 100 kitchen workers at Time 1, 40 percent, or 40 kitchen workers will remain in the job at Time 2. If we add the total number of employees down each column, we can see the total number of workers for each job in Time 2. Looking at kitchen workers in Time 2, we expect that 40 will remain in the job, 15 will come from the server job, and 1.25 will come from the cook job, for a total of 56.25 kitchen workers expected at Time 2. This means that the supply of kitchen workers has gone down from 100 in Time 1 to 56 in Time 2, and the firm can look at its expected demand for kitchen workers in Time 2 to assess the degree to which 56 kitchen workers represents an expected shortfall. Looking along the columns to see the expected number of workers that will be in each job at Time 2, we can see that the cook job has gone from 25 cooks in Time 1 to 32.5 cooks at Time 2. This is a different kind of problem, suggesting that the career path for food prep workers is leading to a surplus of cooks. Based on these Markov model results, we can develop HR policies and redesign
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jobs to overcome the gaps and surpluses that are apparent as a result of the Markov analysis.
By using employee movement data from the recent past, it is possible to calculate
transitional probabilities
, or the likelihood that an individual in a specific job will be promoted, terminated, moved laterally, be demoted, or stay in the job, normally one year into the future. The relevant period, or length of time between Time 1 and Time 2, is
highly dependent on the speed at which movement occurs in the firm. If the period is too short, then too few transitions have occurred and the model does not reveal much of interest. If the period is too long, then too many transitions have occurred, and the model
does not represent reality. By multiplying the total number of employees or positions in a particular job by the associated probabilities for each of the five possible movement scenarios, the HR planner derives numerical data on employee flow patterns throughout the organization, and between various job levels.
The sequences of movements between various job states are referred to as
Markov chains
(Gans and Zhou 2002, 133–143). Markov chains are derived from the Markov model and can be considered a subset of the model, as they refer to movement sequences between specified job states, not the overall matrix. Detailed examination of the Markov model enables the determination of the number of external recruits required at various levels of the organizational hierarchy to fill openings caused by turnover, termination, promotion, and so on.
The Markov model enables us to determine the specific number of replacements or successors required for any job family annually, as well as for specified future planning periods (based on normal attrition assumptions), which can help the HR function to be more proactive in its external recruitment programs. Additionally, we can calculate the chain of movement from an entry-level job all the way to the CEO appointment, along with forecast times of arrival, stay, and departure, in conjunction with breaks in career progression along the way. In fact, White refers to the length of a vacancy chain (the number of employees who will move as a result of having to replace one individual) as its
multiplier effect
, and his study of U.S. churches showed that for any one retiring minister, a chain of movement for five subsequent ministers was created (White 1970a). The length of an average chain is approximately three (Stone and Fiorito 1986, 635–
642). Apart from its obvious appeal for the career planning of individuals who have upward aspirations in the organization (Gridley 1986, 50–58), HR planners can use the derived information to plan when training and development courses, job rotations, and so
on should be conducted for a specific group of employees, on the basis of predicted time
to move from their current jobs to target jobs several levels higher in the organization’s hierarchy (Sandefur 1981, 67–82; Bartholomew 1996). Therefore, a Markov model has great value for determining the following:
1.
The number of employees who move annually, and over specified time periods, between various job levels
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2.
The number of external hires that are required by the organization, and where the specific jobs are needed
3.
The movement patterns and expected duration in specified jobs associated with patterns of career progression for employees in the organization (i.e., career paths) (Tuma 1976, 338–360)
4.
The number and percentage of all starters at a particular job level who will successfully attain a future target job level by a specified time period
(Rowland and Sovereign 1969, 88–99; Glen 1977, 975–982)
To summarize, for the process of Markov analysis, the planner would
1.
begin by determining the list of mutually exclusive states (promotion, transfer, termination, demotion, or status quo);
2.
develop a matrix of jobs that are linked by career progression or historical movement, based on the pattern of transitions between jobs;
3.
use historical data to determine the probability of moving from one state
to another; and
4.
populate the matrix with an initial distribution of job holders across the various states of the model.
All this information provides important insights in calculating the most appropriate balance between training and promoting internal employees on the one hand, and external recruiting on the other. For example, a Markov model of nurses in rural areas showed that salary increases and educational opportunities increased the number of nurses in these otherwise difficult-to-staff regions (refer to HR Planning Today 6.3.1) (Lagarde and Cairns 2012, 270–282). Markov models provide a relatively straightforward
method for providing a snapshot of the flow of human capital, and for identifying gaps between the demand for human capital and its supply.
HR Planning Today 6.3.1: Using Markov Models to Test Employee Movement and Policy Changes
Markov models are often used to understand and predict the flow of jobs in an organization; however, they can also be used to predict how jobs move at the industry level and to test the effects of policy changes on employee movements. For example, the persistent shortage of professional health care workers such as nurses in rural areas
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is a problem in many countries, including South Africa. A Markov model was utilized in an attempt to understand what sorts of policies to implement in order to increase the number of nurses willing to serve in rural areas in South Africa and to retain these nurses
longer.
The Markov model was developed using roughly the same method outlined in this chapter. The planners developed a set of assumptions that incorporate the various states nurses could occupy during their career. These states included (1) working in the rural sector, (2) working in the urban sector, (3) working in the private sector, (4) working overseas, (5) doing a one-year specialty training course, and (6) leaving the profession. The time period that was reasonable to represent movement from one state to another was one year, and the researchers assumed that once nurses leave the profession, they
do not return. The model itself examined a typical career of 40 years, from age 25 to age
65.
The difficult part of this model is determining the transitional probabilities of moving from one state to another. This involved making many assumptions about the workforce and combining those assumptions with observations of past movements. The information gathered to assist in the assumptions around transitional probabilities included observations such as the knowledge that nurses typically specialize in the first 10 years of their career, that working conditions tend to be better in the private sector than in the public sector, and that working conditions are most difficult in rural areas.
The model was then run, making changes to assumptions and modelling policy interventions, such as how movements would change if nurses working in rural conditions were provided with an additional allowance. Looking at a longer time frame enabled the researchers to model the short- and long-term effects of policy changes, and
to model the effectiveness versus the costs of various policies over the long term. While the assumptions that are used to generate the transitional probabilities require more simple generalizations at the industry level, the method of generating a Markov model is very similar at the organizational level. Thus, Markov models can be used in organizations not just for modelling employee movements between related jobs, but also
to model the effects of policy changes on those movements by incorporating the assumptions of what the policy changes should do to the transitional probabilities. After the policies are instituted, HR professionals can track employee movements to observe the extent to which their assumptions were correct, and make further corrections if necessary.
Source: Lagarde and Cairns (2012, 270–282)
Question 6.6
Review
What rate of transitional probability would an organization have if it had a job category of 10 people and determined from analysis that three employees left every year?
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a
3 percent
b
10 percent
c
20 percent
d
30 percent
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Question 6.7
Review
When considering employee movement patterns in the Markov model, how many possible movement options does an employee have?
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a
four
b
five
c
eight
d
ten
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Question 6.8
Review
What is one of the major benefits of using the Markov model?
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a
It can avoid the bullwhip effect.
b
It has data that are readily available.
c
It is cheaper than mass HR customization.
d
It is faster than regression analysis.
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6.3.3 Linear Programming and Simulation
Linear programming
is a mathematical procedure commonly used for project analysis in engineering and business applications. It has utility for HR planners because it allows us to determine the future supply of human capital based on achieving the best staffing outcome while taking into account certain constraints such as labour costs (Al Subhi Al-
Harbi 2000, 47–55; Gans and Zhou 2002, 991–1007; Weigel and Wilcox 1993, 281–
306). Furthermore, conditions such as desired staffing ratios (e.g., the internal/external mix of employees) can be programmed into the equation for determining HR supply. The
model provides the optimum or best supply-mix solution, and the best conditions obviously vary across organizations (Patz 1970, 131–138). Some companies may seek to minimize turnover or total labour costs, while others may seek to achieve an optimum level of staffing with respect to designated groups (e.g., visible minorities, women, Indigenous peoples, and people with disabilities) in all job levels throughout the organization (Gans and Zhou 2002, 991–1007; Walker 1980). By providing the optimum level of human capital supply with respect to explicitly defined constraints or criteria, linear programming enables the calculation of
what-if
scenarios by changing or relaxing various model assumptions in order to determine the impact these changes will have on final numerical requirements for both internal and external supply.
To use linear programming, assumptions have to be similar to those used in regression analysis (discussed in Chapter 5), namely that the mathematical model has to contain variables that have
linear relationships
among the various constituent elements. If this situation does not hold, then simulation models can be used. Simulation relaxes the requirement for linear relationships, but at the expense of greater dependency on the assumptions around the algorithms used to calculate the forecasts. Refer to Video 6.4 below to learn more about linear programming.
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Video 6.4
Linear Programming [8]
The province of British Columbia used linear programming to determine the total number
of students to admit to health care programs, the total number of nurses to train for management roles, and the total number to recruit from outside the region. The model incorporated variables such as learning and parental leaves, promotion rules, and rates and age (Lavieri and Puterman 2009, 119-128). Complex mathematical models such as linear programming and simulation have distinct advantages; they can integrate a large number of variables from across the organization, they are excellent tools for testing
what-if
scenarios and the impact of assumptions on forecasts, and they can simultaneously forecast both demand and supply. However, as we will discuss in more detail in Chapter 8, Information Technology, for HR Planning the complexity of these models can make them difficult to understand and troubleshoot, even for the designers of the models.
6.3.4 Movement Analysis
Movement analysis
is a technique used to analyze the chain or ripple effect that promotions or job losses have on the movements of other employees in an organization (Bartholomew 1982; Bartholomew 1996; Burack and Mathys 1996; White 1970a; White 1970b, 97–105). The total number of people movements is always greater than or equal to the number of vacant positions to be filled. If relying solely on external hires, the number of vacant positions to be filled is exactly equal to the number of new hires obtained by the organization, as there are no internal promotions of current employees to
replace the losses. Conversely, if we rely heavily on current employees (i.e., internal supply) to fill position openings, the total number of movements will be greatly in excess
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of the number of open positions, because any one opening (e.g., due to a promotion, as shown in Figure 6.7, or to termination) will result in a chain of subordinates sequentially moving to fill the gaps (refer to HR Planning Notebook 6.3.1 for recommendations around how to manage internal labour markets) (Geerlings and Van Veen 2001, 287–
310; White 1970a; White 1970b, 97–105). Movement analysis enables the HR planner to
select the desired mix or percentage of internal and external supply for those positions requiring replacements, ranging from a promote-from-within policy to the other extreme of replacing losses entirely through external hiring.
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Figure 6.7
Most large organizations have a policy of promoting from within. [9]
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HR Planning Notebook 6.3.1: Managing the Firm’s Internal Labour Market: Lessons from the Field
Professors at Simon Fraser University’s Faculty of Business Administration have uncovered four lessons in properly using internal labour markets to supply an organization’s staffing requirements, based on their study of a large manufacturing firm:
1.
Managers should recognize that there are often
multiple internal labour
markets typically operating in one firm.
2.
Managers should conceptualize their staffing task as managing a system of human resource
flows
.
3.
Managers need to develop an appreciation for the
temporal
and
situational contexts
within which staffing decisions are
made.
4.
Staffing decisions themselves can be appropriately viewed as garbage-
can models (a classic model of decision making) in which
multiple issues
and
multiple criteria
are typically invoked in matching individuals and jobs.
Source: Pinfield and Bushe (1992)
Movement analysis can be performed for the organization as a whole, although analysts normally find it more useful to conduct separate analyses for each department, division, or functional area (Monks 1996, 721–735). The normal planning time horizon is one year, and starts with identifying the number of employees in each authority or compensation-band level at the start of the forecasting period. Next, we consider changes in the level of staffing for the department—that is, whether we are going to increase the number of jobs in some or all authority levels or downsize to reduce the total number of employees in the department. Having increased or decreased the employee requirement from that forecasted at the start of the period, we now turn to calculating the losses requiring replacement for each authority level of the department. We are interested only in losses (e.g., because of promotions, transfers out of the department, voluntary turnover, termination) that need to be replaced; therefore, it is important that we not “double-count” positions that have already been incorporated into the staffing changes column! We add changes in staffing level to employee losses requiring replacement to give us the total number of positions requiring replacement. At
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this stage, having determined the total number of positions to be filled, the actual number
of employee movements – as briefly described previously – can vary widely, depending on our organization or department’s desired policy concerning the supply mix of internal and external replacements. HR Planning Notebook 6.3.2 provides information on the kinds of data that may be used to help determine whether to develop human capital internally or to hire from external sources.
HR Planning Notebook 6.3.2: Using Data to Decide Whether to Develop Internally or Hire Externally
The decision to
make
or
buy
the inputs necessary to produce a product or service are based on factors such as the strategic importance of the input, and the strength the supplier of the product has in capturing value. For example, television manufacturers tend to differentiate themselves on the basis of the quality of the picture their televisions produce. However, manufacturing the LCD panels in televisions is complicated and expensive, and the technology on which they are built is constantly changing, so there are only a few companies that manufacture LCD panels for televisions. In this case, the supplier of the LCD panels has a lot of power in the industry, because its buyers (the television producers) are highly dependent on LCD panels for their products, and those buyers have little choice as to where to source their LCD panels. For the television manufacturer, the only choices available are to continue to buy LCD panels from its current source, or if its source becomes so expensive that it no longer derives a competitive advantage from selling televisions, it could (1) move out of the television sales industry, (2) design and manufacture its own LCD panels, or (3) buy its supplier. These choices have clear boundaries, and a firm can decide at what specific point it makes sense to buy or make the inputs to its supply.
How does this question extend to the supply of labour? To
buy
human capital implies hiring from the labour market, and to make human capital implies training and developing employees. The decision is not as clear-cut when looking at human capital partly because it is very difficult to determine the difference in costs between these two options. But as discussed in HR Planning Today 6.4.1, it is possible to assess the cost of
too much supply versus not enough. The Government of Canada produces several forecasts of labour supply that can help planners to decide what jobs should receive more development and training attention in anticipation of external hiring challenges. The
relevant forecasts produced by the federal government include the following:
Job vacancy rate.
Statistics Canada produces monthly estimates of the number of jobs that are unfilled as a proportion of all jobs, by geographical region and by industry. This can help planners to
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understand areas of the job market that are experiencing or are expected to experience a shortage or surplus of available labour.
Job openings by skill level.
The Canadian Occupational Projection System (COPS) produces forecasts of job openings attributable to economic growth and employment growth, by skill level and industry. Planners can use these data to make longer-term estimates of labour shortage or surplus.
Taken together, planners use these data to help forecast the expected availability of external labour, which can then be incorporated into decisions around the importance of developing internal labour pools for talent.
Sources: Statistics Canada (2019); Employment and Social Development Canada (2021)
Tables 6.2 and 6.3 demonstrate the assumptions and outcome of a movement analysis exercise. Table 6.2 shows the expected movement of employees at each job level in a work unit. At the beginning of the planning period, there are six jobs in job level 5; by the end of the period, this increases by another six positions, but three existing employees are expected to leave. Therefore, the total number of positions to be filled at this level is nine. Taking these total changes at each level to Table 6.3, we notice that the changes made at each level are cumulative, so that 167 changes are required to accommodate the call for 68 positions to be filled.
Table 6.2
Number of Positions to be Filled (Burack and Mathys (1996); Bartholomew
(1982); Burack and Walker (1972); Grinold and Marshall (1977); Niehaus (1988, 95–
107); Walker (1980); White (1970a))
Job Level
Number of Positions at Start of Period
Staffing Changes
Terminations
Positions to be Filled
4
1
1
0
1
5
6
6
3
9
6
20
1
5
6
7
32
2
10
12
8
40
2
14
16
9
50
3
21
24
149
15
53
68
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Table 6.3
Employee Movement (Burack and Mathys (1996); Bartholomew (1982);
Burack and Walker (1972); Grinold and Marshall (1977); Niehaus (1988, 95–107);
Walker (1980); White (1970a)) (For accessible table please refer to Content for
Accessibility folder.)
By estimating the number of internal promotions and external hires, movement analysis can help planners to ensure that the firm is able to devote enough resources in the training and development of its current employees (i.e., the 99 employees who would have taken up positions at higher levels) and in the recruitment of the 68 new hires.
Question 6.9
Review
If a clothing retail store wanted to better understand its internal supply of salespeople, which of the following would be most likely to characterize that concept?
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a
internal regression analysis
b
skills gap analysis
c
Markov modelling
d
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employee segmentation
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Question 6.10
Review
Which of the following would be best suited for an organization's analysis of the overall rate of job movement within the company?
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a
Markov model
b
employee segmentation model
c
linear program simulation
d
job audit
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Question 6.11
Review
What is the normal planning time horizon for movement analysis?
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a
six months
b
one year
c
two years
d
three years
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6.3.5 Vacancy Model
The
vacancy, renewal, or sequencing model
analyzes human capital flows throughout the organization by examining inputs and outputs at each hierarchical or compensation level (Geerlings and Van Veen 2001, 287–310; White 1970a; White 1970b, 97–105; Bartholomew 1982; Bartholomew 1996). Vacancy models have been found to have more
predictive capacity than Markov models over short- and long-term periods (of three, five, and ten years) (Konda and Stewman 1980, 276–301), although the common time frame for this model is one year into the future. It is important to calculate supply requirements one level at a time in a “top-down” fashion, beginning at the highest relevant level, because the normal direction of employee movement in an organization is from the bottom to the top. The rationale behind the vacancy model is simple: the supply needs at
each salary level are determined by staffing changes—the number of employees promoted out of the level plus any losses (e.g., retirements, departures, terminations).
Organizational policy is used to determine the extent to which these openings will be filled by internal and external supply. Losses are normally based on historical trends with
respect to the proportion of employees at each level who normally exit from that level annually, while growth estimates are based on the normal business forecasting process. Overall, vacancies in the organization lead to a sequence of internal promotions from lower levels as the open positions are filled by replacements. The vacancy model identifies the specific number of external and internal replacements required at each level and for the organization as a whole. Table 6.4 demonstrates the output of a vacancy model exercise. The assumptions that are required to produce this model include an estimate of the proportion of external hires that will be made at each job level;
for example, this model assumes that job levels 1 and 2 will be filled 100 percent internally. The bottom row of the table shows the total expected forecast of external hires, and the columns break down the replacements and expected external hires by job level.
Table 6.4
Output of a Vacancy Model Exercise
Leve
l
Number of Employees at Start of Year
Annual Losses
Promotions to Level
Level Outflows
External Hiring
1
1
1
1
1
0
2
6
1
2
2
0
3
18
3
4
5
1
4
45
9
9
13
4
5
88
22
14
31
17
6
156
78
0
92
92
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314
114
30
144
114
The vacancy model also demonstrates that despite the requirement to hire 114 new hires, this is being offset by 114 terminations, representing net growth of zero.
Question 6.12
Review
Which approach is the most commonly used for contemporary HR supply-side forecasting?
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a
Markov model
b
linear programming
c
movement analysis
d
succession
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Question 6.13
Review
Which strategy should an HR director use if they want to use the most effective labour movement analysis tool across a 10-year time horizon?
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a
skills inventory model
b
Markov model
c
vacancy model
d
mass HR customization model
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Question 6.14
Review
What is the most important factor in accurate vacancy modelling?
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a
the number of vacancies
b
beginning analysis at highest relevant level
c
usefulness for estimating internal and external supply
d
accounting for personnel losses
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6.4 Substitution and Other Gap Strategies
After forecasting the demand for and supply of human capital, the difference between these two figures represents a surplus if the supply exceeds demand, or a gap if the demand exceeds supply. In the event of a gap, firms must hire externally in the short term but have a few more options over the long term. Some strategies include outsourcing the extra requirement, focusing on retention strategies to reduce voluntary terminations, increasing training and development efforts to further develop the internal labour pool, and substituting human efforts with automation (refer to Figure 6.8 and HR Planning Notebook 6.4.1 for ideas on enhancing retention policies). The introduction to Chapter 5 discusses the uncertainty that automation will bring to employment over the next 10 years. Looking at the automobile industry as an example of how automation might be used as a substitute for human labour, the industry has transformed only its most basic and repetitive functions, such as paint and body shops (Knoess, Harbour, and Scemama 2016, 2–5). It appears that fast response may be an impediment to automation, since it takes time to develop and adjust the tools to perform the work, and it
takes time to recoup the investments made in the technology and machinery. People can
be retrained much more quickly and efficiently.
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Figure 6.8
Automation is expected to become a popular substitution strategy over the
next decade, particularly for low-skilled or repetitive jobs. [10]
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HR Planning Notebook 6.4.1:
Developing Effective Employee Retention Policies
Although most organizations tend to devote considerable time and resources to the process of
attracting
new workers, a great many fall short of putting enough emphasis on
retaining
the high-quality workers they currently employ. In order to rectify this situation, studies note the importance of making retention policies a top corporate priority. Several studies have clearly shown that managers at all levels should be held responsible for the retention of their employees, and managerial performance evaluation should incorporate specific measurable goals in this matter. Greater importance should be given to identifying high-performing and high-potential employees, and their associated values, interests, needs, and so on, before they leave to work for competitors. Organizations should conduct a demographic analysis and compensation reviews by using their HRMS. These analyses will enable HR planners to identify potential gaps in skills and develop policies to ensure sufficient well-trained employees are on hand over the medium and long term. Other retention policy recommendations include the following:
1.
Forming a “retention task force” that includes HR professionals, line unit
managers, and senior executives.
2.
Reinforcing employee loyalty and performance by “promoting from within” wherever possible.
3.
Measuring turnover on an ongoing basis at corporate, division, and local levels, utilizing multiple measures.
4.
Holding line managers responsible for retention.
5.
Reviewing and addressing compensation and working condition issues before they become issues of dissatisfaction that prompt employees to leave the organization.
Sources: Young (2000, 117–120); Abrams (2002, 15–18)
6.4.1 Managing the Bullwhip Effect
Managing the supply of human capital is most effective when the stock and flow of that human capital are considered together and in detail. Human capital segmentation, Markov analysis, movement analysis, and vacancy models all consider the current stock
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of employees and how the flow of those stocks will influence the supply. This level of detail can help to reduce the bullwhip effect that is known to affect demand and supply relationships. The
bullwhip effect
occurs when errors in estimates of supply become amplified as those errors are compounded along the supply chain. Video 6.5 describes the bullwhip effect.
Video 6.5
Bullwhip Effect [11]
For example, if the manager at a clothing retailer is uncertain as to the exact supply of part-time salespeople in the store, they might decide to estimate the supply a little on the
low side just to ensure there is not a shortfall of employees available to work part-time. When considering the demand for part-time salespeople, planners will reduce risk by estimating demand a little on the high side, to make sure there is not a shortage of part-
time salespeople. Now this error has been compounded, so when a gap analysis is examined between the estimated demand for and supply of part-time salespeople, the gap will be much larger than anticipated by either the demand or supply estimate. This exaggerated gap gets passed to recruitment, who in order to reduce risk will recruit for slightly more than the estimated amount to make sure there is not a shortage of part-time
salespeople. Now this error has been compounded yet again. After recruitment has taken place, planners are shocked to learn that they greatly overestimated their need for part-time salespeople. The bullwhip effect can be present in any kind of supply chain, and in the context of human capital management it can waste recruitment resources, employee time, and the firm’s money. HR Planning Today 6.4.1 provides recommendations around understanding and reducing the negative consequences of forecasting errors.
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HR Planning Today 6.4.1: How Accurate is your Forecast?
Forecasts are almost never absolutely correct. Given the unpredictable and ever-
changing nature of the economy, business plans, and management preferences, it is not
surprising that forecasts stand little chance of being exact. But being precise is not the main objective of forecasting. What is important is understanding what is worse: being wrong by underestimating supply or being wrong by overestimating supply. For a high-
tech company that estimates that it should hire 10 new engineers, will business suffer more from hiring 10 when it only needed 6, or from hiring 10 when it really needed 14? In
order to reduce the costs of errors in forecasts, planners can do two things:
1.
estimate the amount of error in forecasting, and
2.
consider the costs of underestimates versus the cost of overestimates.
Given what we know about the bullwhip effect, when demand estimates are based on production, sales, or some other organizational index, the error in that measure will tend to be compounded by subsequent estimates. In order to measure how much error has crept into their estimates, planners can compare past forecasts with actual requirements.
Taking the average of the error rates over several years (or other relevant period) of estimates will provide some indication of the extent of the error and also its direction (that
is, whether the estimates tend to undershoot or overshoot actual requirements).
After assessing the amount of error in estimates, planners can examine the costs of being wrong in either direction. Managers should consider the impact to the actions relevant to implementing the firm’s strategy when estimates are too low; can the skills that are required to perform the work be acquired through other means (temporary workers, contracting the work to external sources, auctioning the work on a talent portal, new hires, etc.)? Planners must also consider what will happen if estimates are too high; can the surplus employees be used in some other way that is useful to both the employee and the organization? Are the differences in errors in one direction significantly
more costly to the organization than errors in the other direction? Answers to these questions can help planners and managers to understand how much error tends to be in their forecasts, the severity of mistakes in one direction or the other, and the costs associated with being wrong.
Source: Cappelli (2009, 8–15)
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Steeping some tea...
Summary
L.O. 6.1
Job analysis is an important tool for uncovering the important and job relevant KSAOs/competencies for a job. This information is necessary to demonstrate where critical KSAOs are present in the organization, as well as where critical KSAOs may be absent. Training and development plans can be put into place to fill any gaps. Employee segmentation is an emerging method to increase the firm's ability to ensure that critical KSAOs are available.
L.O. 6.2
Organizations cannot rely solely on government programs and market forces to ensure an adequate supply of human capital. Firms can train employees, target specific labour markets, and expand the candidate pool through inclusion and diversity efforts. In addition to increasing the number of people with the necessary human capital, organizations can focus on retaining existing employees using targeted retention practices and by customizing the HR experience at the individual employee level.
L.O. 6.3
Skills and management inventories contain information that allows a detailed analysis of the current workforce to determine whether an organization can meet the demand for replacement from current employees in the organization. Markov models use
historical patterns of individual movement between jobs in the organization based on the transitional probabilities for promotion, transfer, and remaining in the particular job for an annual or specified future period. Markov analyses allow planners to model the number of open positions throughout the organization and can track career progression and the time required for individuals to reach specified target jobs. Linear programming and simulation use mathematical equations and algorithms to model supply given specified constraints such as minimizing labour cost or achieving a desired mix of diverse employee group memberships. Movement analysis enables the identification of not only the location and number of open positions that must be filled by the organization but also
the total number of individuals who will be moved to fill these openings. The vacancy model provides specific information on total flows into and out of each job, compensation
level, and the organization as a whole.
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L.O. 6.4
While any forecasting method will lead to error, it is important for planners to understand the potential sources of error in forecasting supply, and to monitor past forecasts and forecasting methods in order to continuously improve forecasting practices.
Glossary
Bullwhip effect
When errors in estimating the supply of human capital are amplified along the supply chain, resulting in large overestimates of hiring needs.
Employee segmentation
The grouping of employees based on characteristics that are relevant to the employee experience, such as career preferences, demographics, work–
life preferences, or benefits.
External supply
Members of the workforce not currently employed by the firm, who are currently undergoing training, working for competitors, members of unions or professional associations, in a transitional stage, between jobs, or unemployed.
Internal supply
Existing employees who can be retrained, promoted, transferred, or otherwise redeployed to fill anticipated future HR requirements.
Linear programming
A complex mathematical procedure commonly used for project analysis in engineering and business applications; it can determine an optimum or best-
supply mix solution to minimize costs or other constraints.
Management inventory
An individualized personnel record for managerial, professional, or technical personnel that includes all elements in the skills inventory with the addition of information on specialized duties, responsibilities, and accountabilities.
Markov model
A model that produces a series of matrices that detail the various patterns of movement to and from the various jobs in the organization.
Mass customization of HR
The ability to customize HR practices at the employee level efficiently and at low cost.
Movement analysis
A technique used to analyze the chain or ripple effect that promotions or job losses have on the movements of employees.
Skills gap
A situation in which the supply of a particular form of human capital available to the firm is inadequate to address the demand.
Skills inventory
An individualized personnel record held on each employee except those currently in management or professional positions.
Transitional probability
Calculated as the proportion of employees, or the number of employees who have historically resided in a given employment state divided by the total
number of employees in the job. The transitional probability of termination for a job that has 10 employees and historically has seen two leave every year is 2/10, or 20 percent.
Vacancy, renewal, or sequencing model
Analyzes flows of employees throughout the organization by examining inputs and outputs at each hierarchical or compensation level.
Discussion Questions
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Steeping some tea...
Steeping some tea...
Steeping some tea...
Steeping some tea...
Exercise
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Steeping some tea...
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Microeconomics: Private and Public Choice (MindTa...
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Economics: Private and Public Choice (MindTap Cou...
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ISBN:9781305506725
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Essentials of Economics (MindTap Course List)
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Principles of Economics 2e
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Author:Steven A. Greenlaw; David Shapiro
Publisher:OpenStax