Strategic Human Resource

Management

Chapter 3
Human Resource Planning
 HR Planning: Definition

• Human Resource Planning is the process of

determining an organization’s human
resource needs. – David A. DeCenzo & S.P.
Robbins

• Human resource planning refers to the

process of deciding what positions
the firm will have to fill, and how to fill
them. – Gary Dessler
 HR Planning: Definition
• As defined by Bulla and Scott (1994)*,
human resource planning is ‘the process for
ensuring that the human resource requirements
of an organization are identified and plans are
made for satisfying those requirements’.
HR planning is also known as workforce planning or
planning employment or personnel planning.

*Bulla, D. N. and Scott, P. M., (1994). Manpower requirements forecasting: A

case example. In D. Ward, T. P. Bechet and R. Tripp (eds), Human
resource forecasting and modelling. New York: The Human Resource
Planning Society.
 Importance of HR Planning
• Human resource planning is a
process by which an organization
ensures that
– it has the right number and kinds of
people
– at the right place
– at the right time
– capable of effectively and efficiently
completing those tasks that will help
the organization achieve its overall
strategic objectives.
 Key Issues in HR Planning
• HR Planning must have direct linkage to the
organization’s strategic direction.
(HR Planning must be linked to the
organization’s overall strategy and planning to
compete domestically and globally).
• Overall plans and objectives must be translated
into the number and types of workers needed.
• Senior HRM staff need to lead top management
in planning for HRM issues.
The Strategic Planning Process

Vision & Mission

|
Objectives
|
Environmental/ Situation Analysis
SWOT Analysis, PEST Analysis (Political, Economic, Social, and Technological
Factors)

Strategy Formulation

Implementation

Evaluation and Corrective Action

The Strategic Planning Process:
The Strategic Direction – HR Linkage
Vision and Mission
|
Objectives

Situation/Environmental Analysis
(SWOT Analysis, PEST Analysis (Political, Economic, Social, and Technological
Factors)
|
Strategy Formulation
|
Structure
|
People
The Strategic Planning Process:
The Strategic Direction – HR Linkage
▪ Step1: Defining Strategic Vision &
Mission

Strategic vision reflects future aspiration of an

organization. It provides a panoramic view of
“where we are going” and gives specifics
about its future business plans.

It is a roadmap of a company’s future. It

describes the future business scope.
The Strategic Planning Process:
The Strategic Direction – HR Linkage
A mission statement defines a
company’s present business scope –
‘who we are and what we do’.

It defines what business the organization

is in, including why it exists and who its
customers are.
The Strategic Planning Process:
The Strategic Direction – HR Linkage

The mission statement is important

because it’s the foundation on which
every decision in the organization should
be made.
Google’s Mission Statement is ‘to
organize the world’s information and
make it universally accessible and useful.’
The Strategic Planning Process:
The Strategic Direction – HR Linkage
▪ Step 2: Setting Objectives
Setting objectives involves converting
strategic vision and mission into specific
performance targets – results and
outcomes the organization wants to
achieve.
– Set by senior management to establish
targets for the organization to achieve.
 The Strategic Planning Process:
The Strategic Direction – HR Linkage
From the companywide perspective, objectives
are of two types:

⚫ Financial Objectives
Outcomes focused on improving financial
performance.

⚫ Strategic Objectives
Outcomes focused on improving organization’s
overall business position and competitiveness.
 The Strategic Planning Process:
The Strategic Direction – HR Linkage

Examples of Financial Objectives:

⚫Grow earning per share 15% annually.

⚫ Boost annual return on investment from 15% to
20% within three years.
⚫ Increase annual dividend per share
to stockholders by 5% each year.
⚫ Maintain a positive cash flow every year.
 The Strategic Planning Process:
The Strategic Direction – HR Linkage
Examples of Strategic Objectives:
⚫Increase firm’s market share.
⚫Overtake key rivals on quality or customer service or product
performance.
⚫Attain lower overall costs than rivals.
⚫Boost firm’s reputation with customers.
⚫Attain stronger foothold in international markets.
⚫Achieve technological superiority.
⚫Become leader in new product introductions.
⚫Capture attractive growth opportunities.
 The Strategic Planning Process:
The Strategic Direction – HR Linkage
▪ Step 3: Conducting Corporate Assessment

– SWOT
(Strengths-Weaknesses-Opportunities-Threats)
analysis determines what is needed to meet
objectives.
The Strategic Planning Process:
The Strategic Direction – HR Linkage
▪ Step 4: Strategy Formulation

✔ Once a clear picture of the firm and its environment

is in hand, specific strategic alternatives can be
developed.
✔ Strategy is the means of achieving objectives.
✔ A company’s strategy consists of the competitive
efforts and business approaches that managers
employ to please customers, compete successfully,
and achieve successfully.
The Strategic Planning Process:
The Strategic Direction – HR Linkage
A Firm's Strategy is all about HOWs
⚫ How to grow the business.
⚫ How to please customers.
⚫ How to outcompete rivals.
⚫ How to respond to changing market conditions.
⚫ How to manage each functional piece of the business and
develop needed organizational capabilities.
⚫ How to achieve strategic and financial objectives.
The Strategic Planning Process:
The Strategic Direction – HR Linkage
✔ Michael Porter identified cost leadership,
differentiation, and focus as three generic
strategies.

▪ Step 5: Structure

– Organization determines what jobs need to

be done and how many and what types of
people are required for those positions
(called organizing)
The Strategic Planning Process:
The Strategic Direction – HR Linkage
▪ Step 6: People

– HRM determines what duties and responsivities

are to be performed in each job.
and
– HRM determines what knowledge, skills and
abilities are needed by the organization’s human
resources.
 Strategic Plans and HR Planning

– HR Planning shouldn’t occur in a vacuum.

– Instead, HR planning should be based on the
firm’s strategic and business plans.
For example, the firm plans to enter new
business, to build new plants, to control supply
of its raw materials, or to reduce activities will all
influence the number and types of positions to
be filled.
Linking Employer’s Strategic Plans with HR Planning

5–21
Steps in Human Resource Planning

1. Assessing Current Human Resource

– This step begins with developing a
profile/inventory report of all current
employees working in the organization.

– This HR inventory report should include

complete information of employees by name,
current position, education, training, prior
employment, compensation, performance
ratings, skills, capabilities, and potential etc.
Steps in Human Resource Planning

1. Assessing Current Human Resource

– This HR inventory report helps to know what
stock of HR an organization has in terms of
quantity as well as quality.
Steps in Human Resource Planning
– Human Resource Information
Systems (HRIS) are increasingly
popular computerized databases that
contain important information about
employees.

– HRIS is a computerized system that

enables human resource managers to
gather, organize, store, update and
retrieve the information needed for
managing employees.
Steps in Human Resource Planning

– Succession planning is an ongoing process for

identifying and developing new leaders who can
replace old leaders when they leave, retire or
die.
Steps in Human Resource Planning
– Succession planning
• includes the development of replacement
charts
• portray middle-to-upper level management
positions that may become vacant in the near
future
• lists information about individuals who might
qualify to fill the positions.

✔ Replacement chart is an organizational chart that

shows what positions are to be vacant in the near
future and the individuals who may fill the vacancies.
FIGURE 5–4 Management Replacement Chart Showing Development
Needs of Potential Future Divisional Vice Presidents

5–27
Steps in Human Resource Planning
2. Forecasting the Demand for Labor
– HR forecasting involves projecting labor
needs and the effects they’ll have on a
business.
– An HR department forecasts both short-
and long-term staffing needs based on
projected sales, projected production,
office growth, employee turnover rate and
other factors that affect a company’s need
for labor.
Steps in Human Resource Planning
2. Forecasting the Demand for Labor
– On short term, management should be
concerned with daily, weekly, and seasonal
forecasts.
For example, retailers track daily sales
trends during the celebration of Pahela
Baishakh and attempt to forecast a need
for additional store staff.
Steps in Human Resource Planning
2. Forecasting the Demand for Labor
– On longer term, management may follow
industry publications, economic forecasts,
strategic plans closely and try to get
senses for future demand.
Steps in Human Resource Planning
3. Predicting the Future Labor Supply

✔The employee base that we determined in Step

1 will not remain constant in future.

✔Thus, forecast the future labor supply by looking

at some factors that either increase or
decrease the employee base.
Steps in Human Resource Planning
3. Predicting the Future Labor Supply

– A unit’s supply of human resources

increases from:
• new hires
• contingent workers (Contractual +part-time)
• transfers-in Marketing manager transferred from Chittagong to Dhaka
• individuals returning from leaves
Steps in Human Resource Planning

– A unit’s supply of human resources

decreases from:
• Retirements
• Dismissals
• Transfers-out
• Lay-offs
• Voluntary quits
• Sabbaticals
• Prolonged illnesses
• Deaths
Steps in Human Resource Planning
4. Matching Labor Demand and Supply
– HR planning compares forecasts for
demand and supply of workers.
– Special attention should be paid to current
and future shortages and overstaffing.
– Decruitment or downsizing may be used
to reduce supply and balance demand.
– Rightsizing involves linking staffing levels
to organizational goals.
Steps in Human Resource Planning
4. Matching Labor Demand and Supply

– Rightsizing involves linking staffing levels

to organizational goals.
(It is employing and maintaining exact number of
employees with required skills, knowledge and
abilities to perform jobs of an organization).

– For recruitment, attention should be given

on possible internal candidates first, and
then on outside candidates.
Linking Organizational Strategy to
Human Resource Planning

Employment Planning and

the Strategic Planning Process
 Forecasting HR Needs

Forecasting Tools

Trend analysis Ratio analysis Scatter plotting

Delphi Managerial
Technique Judgement

5–37
 Forecasting HR Needs

1. Trend Analysis

– Study of a firm’s past employment needs

over a period of years to predict future
needs.
– For example, compute the number of
employees employed in last 5 years in
each subgroup (like sales, production,
administration, etc.) to identify the trends
and future needs.
FIGURE 5–3 Determining Demand for Number of Nurses using Trend Analysis

Number of
Registered
Nurses
Year Employed

1913 240

1914 260

1915 470

1916 500

1917 620

1918 660

1919 820

1920 860

Note: After fitting the line,

you can project how many
employees are needed,
given your projected volume.

5–39
 Forecasting HR Needs

2. Ratio Analysis

– A forecasting technique for determining

future staff needs by using ratios between,
for example, sales volume and number of
employees needed.
– For example, a salesman on an average can
sell goods of TK. 500,000 per month. If an
extra sale of tk. 10,00,000 is targeted, we
would require TWO more sales employees.
 Forecasting HR Needs

3. Scatter Plot
– Also called a scatter graph, scatter chart, or
scatter diagram.
– A graphical method used to identify the
relationship between two variables.
– For example, if we can forecast a business
activity (e.g., sales), we will be able to
forecast our personnel needs.
FIGURE 5–3 Determining the Relationship Between
Hospital Size and Number of Nurses

Hospital Size Number of

(Number Registered
of Beds) Nurses

200 240

300 260

400 470

500 500

600 620

700 660

800 820

900 860

Note: After fitting the line,

you can project how many
employees are needed,
given your projected volume.

5–42
Using Computers to Forecast Personnel
Requirements
• Computerized Forecasts
Software that estimates future staffing needs by:
❖ Projecting sales, volume of production, and personnel
required to maintain different volumes of output.
❖ Forecasting staffing levels for direct labor, indirect staff, and
exempt staff.

5–43
Drawbacks to Traditional Forecasting
Techniques

• They focus on projections and historical relationships.

• They do not consider the impact of strategic initiatives on
future staffing levels.
• They tend to be okay for present planning processes and
the usual ways of doing things.

5–44
 Forecasting HR Needs

4. Managerial Judgement
– Few historical trends, ratios, or relationships will
continue unchanged into the future.
– Judgement is thus needed to adjust the forecast.
– The forecasting is done based on the mangers’
subjective judgement, experience and expertise
with little emphasis on data collection and
interpretation.
 Forecasting HR Needs

4. Managerial Judgement
– This method is suitable when external
environment remains unstable and the future
cannot be predicted accurately through the
analysis of past events.
– Opinions of managers are pooled together in
two ways:
The bottom-up approach
The top-down approach
 Forecasting HR Needs

4. Managerial Judgement
The bottom-up approach
– HR forecasting is done in a decentralized decision-making
style.
– Managers in charge of each division or department or unit
forecast the HR requirements on the basis of unit-wise
goals.
– The forecasting is then moved up gradually to the higher
levels of management.
– Finally, the aggregate forecast of HR requirements is
developed at the top level.
 Forecasting HR Needs

4. Managerial Judgement
The top-down approach
– In this method, top management forecasts the HR
needs of the organization on the basis of the
information available and field of expertise.

– This information is then supplied to various

departmental heads for their review and approval.
 Forecasting HR Needs

5. Delphi technique

– A panel of relevant experts is chosen to

forecast the HR requirements. It facilitates
group decision making.

– Experts may range from first-line

supervisors to top-level managers.
Sometimes, outside experts are also used.
 Forecasting HR Needs

5. Delphi technique
– The human resource experts collect the
manpower needs, summarize the various
responses and prepare a report. This
process is continued until all experts agree
on estimated human resources
requirement.
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