We hosted a HR Director’s Think Tank in Munich early December to explore this very topic. Nick Kemsley, Co Director of the Henley Business School Centre for HR Excellence highlighted that organisations make the mistake of thinking that a well thought out strategic workforce plan results in a nice neat set of numbers, but this couldn’t be further from the truth. In reality there is confusion between Strategic Workforce Planning and simple Resource Planning. Strategic Workforce Planning should be something which is scenario based, fluid, and which feeds off macro data. We must be able to work with ambiguity, use judgement and assumptions in order to get our operational processes delivering value in the time scales required. This means that the real differentiator is not system tools but individual capability to work in this way.  It’s also not only about headcount planning per-se, but taking into account the wider organisational capabilities, internal and external context and linking the two together. By trying to start with the numbers, we are not asking the right questions, and therefore cannot expect to be laying down the capability required in time for when the business needs it.

Ali Gilani, Global Head of Resourcing at ArcelorMittal went on to explain their approach. In essence strategic workforce planning at ArcelorMittal consists of five steps – define the strategic direction of the business, forecast the supply and the demand, gap analysis and development of the workforce plan. Ali considers Strategic Workforce Planning as “a five year plan which is broken down into annual chunks”.  And the one to three year resource plan will inevitably feed in to this.

The key message seems to be that Strategic Workforce Planning is not just a question of determining headcount, but of working back from an organisation’s strategy and external context to understand what this means for people – placing the acquisition, retention and development of talent at the heart of an organisation’s commercial strategy. And for this to happen it cannot just be the province of traditional HR, but must be owned by the business as a whole. And that appears to be a challenge that few companies have so far dealt with in any meaningful way, but which none can afford to ignore. To share best practice and insight into planning for the future, we are hosting a series of think tanks for HR Directors, Heads of Talent and Heads of Resourcing on Strategic Workforce Planning globally with our partners, Pinstripe, in 2012. If you are interested in joining the discussion I’d be delighted to connect.

It appears that the West is slowly losing its economic power as potential moves to new powerhouses in the BRIC countries and Goldman Sachs’ ‘Next 11’ and one of the effects of this is increasing pressure on HR to deliver new, more effective talent strategies. But according to one of the speakers at the conference, the industry will only succeed if it can learn to master an organisations changing complexity and speak the ‘language of business.’ 

Gyan Nagpal, former head of talent in APAC for Deutsche Bank and now CEO of the consultancy, PeopleLENS, emphasised the fact that corporate boards are looking for greater involvement and depth of insight from HR, which means it is now more important than ever that the profession presents its business case in a more structured and robust manner.

Gyan cited some excellent examples of the need for HR strategies to be more flexible and responsive, the ‘market rush’ in the Asia Pacific region being just one. As many companies hastened to take advantage of the emerging opportunities in this area, they stumbled across a key flaw; few major businesses had a proactive strategy to develop their workforces in line with the necessary capital and technological investments.

In order to get the buy in and investment from the board in these instances, it is down to HR to communicate and plan talent investments in terms business-orientated minds will quickly and clearly understand. But how can they do this when there is a disconnect between the HR and corporate functions which has grown since the implementation of the Ulrich Model?

Nagpal used a medical metaphor to describe the solution; prescription without diagnosis could be as dangerous in HR as it is in medicine (also the subject of his book, ‘Talent Economics’, due to be published at the end of 2011). Put simply, this means that HR practitioners will need to analyse both the macro and micro factors that impact an organisation and its target markets in order to formulate tailored strategies in a more scientific way.

According to Nagpal, analysis must also forget the sceptical idea that there is a truly global solution. A ‘one size fits all’ approach is never likely to address the real issues when cultural and contextual influencers will constantly change. Instead what is needed is a flexible yet tailored approach which provides HR with a clear investment recipe for scarce corporate resources.

With this in place HR will be in a better place to achieve the long desired complete credibility with business leaders around the globe.

In one business I was once told that forecasting was impossible at a time of change – heads could be cut, stay the same or increase. A few basic questions later it was clear the decision points were around a specific time period and the scale of possible change easy to analyse – albeit there were three options. As a result the recruitment team was ready to scale up or down at that particular time.

Investing resource in intelligence gathering relationships seems a tough call. It’s usually expensive resource with apparently no juicy metrics like direct hiring. But in our experience it’s a sure fire thing – it inevitably means actual recruitment can be done with fewer people, with lower cost of acquisition, better candidate experience and more effective metrics.

Of course after linking recruitment and planning there’s the connection with internal talent… But’s that’s another story…

So how do organisations bring about alignment? Many try to achieve it during the P&L approval process when the senior leadership team reviews budgets and makes relevant amendments. Although this process can work, it can also leave line managers frustrated, as they do not understand the decisions being taken. So what’s the real solution?

Some companies have managed to build communication strategies to share their vision, ensuring employee engagement, driving the talent agenda and providing all employees with an understanding of their accountabilities. But these paragons of planning virtue are still the exception, rather than the rule. Perhaps the more realistic solution lies in building a bridge between finance and HR and convincing line management to make use of it. If they can be convinced of the need to treat headcount planning with the same degree of care and attention as financial planning a new degree of realism and robustness may be injected into the whole process to the benefit of all.

Well we all know well that talent is not everything and that talent is most definitely not everything if it is not fresh, motivated and in the right role. Effectively planning and mapping internal and external talent and directing this talent to the right role at the right time, has become THE key factor in a business maximising its value and on September 14^th at Wentworth Club in Surrey we will be hearing from industry leaders who have done just this.

It’s not ok just to employ the best talent (as if that wasn’t a big enough challenge in itself!). Change is so frantic and ever present in the post-crunch era that it is what you do with it that matters. And if talent isn’t core in your business strategy, you could retain 15 Alistair Darlings but still end up playing opposition to George Osborne!

At the HROA summit last week in Amsterdam, there seemed to be a difference in opinion as to whether or not HRO providers were really delivering transformational services.  Are HRO providers actually involved directly in adding value themselves or are they providing services that enable HR to focus on adding value to the business? Most HRO providers, whether they are in multiple HR disciplines or specialist, focus hard on providing great efficiency to enable HR to focus on strategy.  So they play the “enabler” role.

As Recruitment Outsourcers we are in a unique position to truly add transformational value and bring expertise through partnership where we often see very lean HR teams.  It is the talent that brings growth and it is incumbent on us as experts to seek to deliver that value, and indeed be measured and paid for the results that drive our clients forward.  And if we are ever accused of not being transformational, perhaps it is because our service simply enables HR to be more strategic themselves, providing functional and process-led services that don’t look beyond the efficiency.

The best organisations can clearly articulate their recruitment cost as a ‘cost per hire’ or ‘cost as a percentage of salary’. The second, more perplexing question is ‘how do you measure it’?

Most organisations will include the cost of recruitment agencies (the predominant source of the cost). Some will also include advertising, travel costs and the cost of the recruitment team but few will go beyond this, which can be a mistake.

Our research uncovered that more than 50% of recruitment costs are indirect. This predominately includes the cost of hiring managers and HR’s time in the process, which is an important role. However when managers are conducting 10 interviews for each hire, it’s easy to see how the costs stack up (we calculated the Hiring Managers time usually cost on average £2500 per hire). Whilst business leaders accept that interviewing is an integral element of a manager’s job, those who are directly revenue generating / working on billable hours will soon resent the cost of the lost earning opportunity. However the indirect cost in only the ‘tip of the iceberg’.

What isn’t measured can’t be managed!

Many organisations will rely on contractors / contingent workers to support their operations. However, a number will also use a contractor as an alternative to permanent recruitment and this is where the costs really mount up.

Firstly, we need to explore why managers choose the contractor route over permanent. Our research uncovered two key reasons:

- Headcount approval – usually hard to achieve for permanent hires but surprisingly easy for contractors

- Talent availability – managers frequently comment that it’s easier to secure a good quality contractor over a good quality permanent employee

Back to the costs; let’s assume most contractors charge a 30% premium to their equivalent permanent salary and that an agency margin adds another 20%. On average therefore the cost of recruiting a contractor over a permanent can easily be 50%. And if the contractor stays for many years so does the cost. Our analysis suggests that the margin paid to contractors can be upto 5 times their annual spend on permanent recruitment. Add in the premium contractors charge and most organisations will be wasting many millions. If that wasn’t enough, many organisations are poor at tracking their contractor headcount.

We’ve undertaken numerous projects with customers to help assess and understand the true cost of contractors. In a recent engagement we identified that the actual number of contractors was 300 percent that which the client was aware of. In monetary terms, over £60million was been spent on contractors which the business was unaware of; £20m of which was as associated with the contractor premium and agency margin.

Brining this analysis through to its logical conclusion, we can see that the organisation was spending £20m on recruitment which it could have saved.

This begs the question; do you really know what your cost of recruitment is?

The system uses short fibers, such as wool, linen or acrylic, mixed with polymers to bind them together. A solvent which evaporates on contact with a surface allows the fibers to be sprayed out of can as a liquid. The spray can be applied using an aerosol can or high pressure spray gun and the texture can be varied by changing the fibers and the numbers of layers of spray.

Interestingly, this ‘spray on solution’ concept was discussed at last year’s RPO Summit.

I remember a discussion at the annual event with several leading RPO companies discussing the proliferation of novice Recruitment Process Outsourcing firms. One member of the dialogue felt very strongly that many of the recent newcomers to the RPO market were capitalizing on RPO’s upward trend and these firms were not really in the same business as us. Instead, they were taking their existing search business models and simply rebranding it as Recruitment Process Outsourcing. Another member of the circle, who was good at analogies, added “it’s like they took a can of spray paint and covered up their old, outdated offering by applying a thin coat of RPO!”

I truly love this kind of debate; however, I tend to be a lot less judgmental of other companies and much more focused on Pinstripe. So my feeling about start ups (regardless of their competency) is ’so what.’

We live a free market society where any company can enter (and exit) and survive based on their merits. If these firms are simply just spraying on a thinly coated RPO solution then customers will quickly see through this deficiency and move to others companies that are providing a proper coating of RPO.

We would like to thank Barry Diamond - VP, Business Development Pinstripe ( strategic partner of Ochre House) - for this great blog.

In this report Deloitte have made no excuses for recommending that organisations “follow the market leaders” and it is for that reason that we have assembled global HR heads from organisations that are leading with their talent management programmes.  On May 13^th Ochre House are running an event that will focus on action, tapping into experts and hearing what needs to be done and how to go about it. 

This is a time for action, so lets hear from those that have already taken a lead.

So, whether you’re recovering from your celebrations at the Recruiter Awards or coming out of a deep slumber over the past decade, perhaps its time to wake up and smell the coffee, as they say.