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CHAPTER 6 Ascertaining HR Supply Chapter Learning Outcomes After reading this chapter, you should be able to: 1. Understand the relationship between demand and supply forecasting techniques in the HR planning process. 2. Recognize the importance of effectively managing the supply of human capital. 3. Comprehend the importance of segmenting human capital to better understand where human capital plays a critical role in implementing strategy and how to manage the supply of that human capital. 4. Discuss and evaluate the advantages and disadvantages of the following specific methods of determining external and internal supply: A. Skills and management inventories B. Human capital segmentation C. Markov models D. Linear programming and simulation E. Movement analysis F. Vacancy/renewal models 1. 5. 2. 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. Chapter Summary This chapter presented six models or techniques used by organizations to determine future HR supply requirements. Skills and management inventories contain information that provides a detailed analysis with the current workforce to determine whether it can meet the demand for personnel replacement from current employees. Succession/replacement analysis expands on the inventories approach by using succession/replacement charts and tables to identify specific replacements for key organizational jobs and consider whether problem areas would occur if individuals are to be promoted/transferred. The Markov model uses historical patterns of individual movements between jobs in the organization and attaches transitional probabilities for promotion, transfer, etc., in particular jobs over an annual or specified period. In this way, exact numbers of open positions can be derived and career progression tracked to assess time required for individuals to reach target jobs. Linear programming uses mathematical equations to determine the optimal or best mix of labour supply given specified constraints, such as minimizing compensation costs or achieving a diverse workforce. Movement analysis enables identification, not only of the location and number of positions that must be filled by the organization, but also of the total number of individuals to be moved to fill openings. The vacancy model provides specific information on total personnel flows into and out of each authority or compensation level, as well as for the whole organization. Accordingly, one can calculate the exact numbers of internal promotions and external recruits that will be required. Finally, a discussion of HR supply demonstrates the need for organizations to develop retention programs to control absenteeism and turnover. Class Outline Instructor’s Teaching Notes Students’ Learning Activities Introduction Organizational HR demand can be satisfied through: Internal supply: existing employees who can be retrained, promoted, transferred, or otherwise redeployed to fill anticipated future requirements. External supply: members of the workforce not currently employed by the firm, who are currently undergoing training, working for competitors, in a transitional stage between jobs, or unemployed. Segmenting the Internal Supply of Human Capital Employee Segmentation John Boudreau, a theorist, proposes asking three questions to understand and influence supply: 1. What are the critical human capital segments? 2. What response do we need from each of these segments? 3. What features of the employment deal create the best response at the lowest cost? Skills gap: a situation in which the supply of a particular form of human capital available is inadequate to address the demand. HR Supply Programs The Role of Employers in Influencing Supply Only 38% of Canadian business offer training to teach technical skills to employees in the highly desirable STEM areas (science, technology, engineering, and math). Other Labour Pools Organizations facing shortages could recruit from underutilized designated groups: • Mature workers/retired workers. • Neurodiverse individuals within the autism spectrum disorder and Tourette syndrome. Influence of Government Programs HR Retention Programs Employers must try to keep their supply of employees level. Even if they are usually able to hire many skilled employees, changes can occur. Besides normal turnover, mismatch to jobs and other circumstances such as a tightening of the labour market may be problems. Employers can gain information on this through the: • Provincial government • Employer associations • Canadian immigration department Methods for Modelling the Supply of Human Capital Skills and Management Inventories Skills inventory: an individualized employee record held on each employee except those currently in management or professional positions. Information includes: • Personal information (e.g., name, employee number, emergency information, compensation band, etc.). • Education, training and skills competencies. • Work history (e.g., date of hire, seniority, current job and supervisor, etc.). • Performance appraisals. • Career information (e.g., future jobs desired by employees and recommendations by supervisors). • Hobbies and interests (including community and volunteer involvement). Management inventory: an individualized employment record for managerial, professional, or technical workers that includes all elements in the skills inventory with the addition of information on specialized duties, responsibilities, and accountabilities. Contains all of the information found in a skills inventory as well as: • History of management and professional jobs held. • A record of management or professional training courses and dates of completion. • Key accountabilities for current job (e.g., organizational resources, including the budget size controlled, the number of subordinates, etc.). • Assessment centre and appraisal data. • Professional and industry association memberships. Markov chains: sequence of movements between various job states. Multiplier effect: the length of a vacancy chain. Value of the Markov Model: This model has great value for determining: 1. The number of employees who move annually, and over specified time periods, between various job levels. 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 progression for employees (i.e., career paths). 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. Markov Models A Markov model produces a series of matrices that detail the various patterns of movement to and from the various jobs in the organization. • Most popular technique used for supply side HR planning. • Used widely in both educational and personnel planning processes. • More accurate than regression models. • Produces a series of matrices that detail the various patterns of movement to and from a wide variety of jobs in the organization. • It is assumed that the pattern of movement is relatively stable over time. Steps to Using Markov Models: 1. Collect historical data on mobility rates between jobs in the organization. 2. Develop matrices to forecast future movement between jobs. 3. Use forecasts of the model to analyze HR policies and programs and instigate necessary adaptive measures. Succession/Replacement Analysis • Succession planning is critical to effective organizational functioning. • With demographic trends predicting even greater shortages in the market supply of skilled labour, organizational succession planning is assuming greater importance. The model uses information on the different types of employees and their movement: • Remaining in the current job. • Promotion to a higher classified job. • A lateral transfer to a job with a similar classification level. • Exit from the job (e.g., termination, layoff, voluntary leaving by the employee) • Demotion (relatively rare). Long-term succession: the process of training and providing work experience to enable individuals to assume higher-level jobs in the future. Short-term emergency replacement of individuals who have quit, been terminated due to performance problems or illness, etc. Ripple or chain effects: the effect created when one promotion occurs: It causes several other employee movements as subordinates are promoted to fill sequential openings. Transitional probabilities: 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. Linear Programming and Simulation Linear programming: a technique used to analyze the chain or ripple effect that promotions or job losses have on the movements of employees. It can determine an optimum (or best-supply mix) solution to minimize costs or other constraints. • Conditions such as desired staffing ratios (e.g., the internal/external mix of employees) can be programmed into the equation for determining HR supply. • Enables HR planners to calculate what-if scenarios. • Like regression analysis, there is an assumption that the mathematical model must contain variables with linear relationships among the various elements. Skills inventory: an individualized personnel record held on each employee (but those for management or professional positions might be kept separate). Information includes personal information including contact details, job classification, education, training and skill competencies, work history, performance ratings, and career information. Management inventory: an individualized personnel record for managerial, professionals, or technical personnel. Data contained includes jobs held, training courses taken, accountability for current job. Movement Analysis Movement analysis: a technique used to analyze labour supply, specifically the chain or ripple effect that promotions or job losses have on the movements of employees. • Analysis identifies the total number of vacant or open positions in the organization or department, and the total number of employee movements caused by replacing and filling these. • The total number of employee movements is always greater than, or equal to, the number of vacant positions. • Enables the HR planner to select the desired mix or percentage of internal and external supply for the positions requiring replacements. • Enables HR planner to ensure that the organization has sufficient resources devoted to the training and development of current employees. Vacancy Model Vacancy, renewal, or sequencing model: analyzes flows of employees throughout the organization by examining inputs and outputs at each hierarchical or compensation level. Substitution and Other Gap Strategies The Role of Employers • Jobs that are difficult to fill can be made more attractive (e.g., improve working conditions or employee perceptions of job). • The types of workers needed can be trained. • Only 38% of Canadian businesses provide training to employees in the desirable STEM areas (science, technology, engineering, and math). Other Labour Pools Influence of Government Programs Managing the Bullwhip Effect HR Retention Programs HR Retaining Recommendations Ask Students: To review the article “Aboriginal People: A Growing Labour Force” In 2006, Aboriginal people had an unemployment rate of nearly 15%, compared to an unemployment rate of 6% in the general population. What methods can be used to recruit from this group? Learning Activity Divide the class into two groups. Ask one group to review the description of a skills inventory while the other group reviews the description of a management inventory. What are the elements of each? Learning Activity Invite an HR professional who has responsibility for succession planning to class to discuss how this is implemented in his or her organization. Representatives from large corporations are very informative because they can discuss the use of the HRMS in determining supply. See HR Planning Today 6.1—What About the Skills Gap? Ask Students: Why do many organizations prefer to use internal supply to fill open positions? Ans. 1. Current employees are already socialized to the norms, rules, and procedures of the organization 2. The employer possesses detailed knowledge (as listed on its HRMS skill inventories) of the employees’ performance and KSAOs (e.g., work history and experience). 3. Internal labour provides employers with protection from economic downturns, as employees can move from one job level to another. 4. Selecting employees for training and development, and promotion, enables the organization to reinforce employee loyalty and performance. 5. Employee motivation and commitment to the organization may increase when loyalty is rewarded. • Lack of attention to HR planning means that many organizations downsize their supply of trained workers in order to achieve short-run cost savings, but at a greater long-term cost. • HR planners are about to hit a demographic wall, including the effects of decreased birth rates, the retirement of baby-boom aged workers, and reduced labour force participation. • Organizations are scrambling to attract and retain qualified workers (i.e., war for talent). Ask Students: What are the benefits of succession planning? Ans: • Protect the legacy of business. • Maintain a service for community. • Build value of business. • Provide financial security for owner and stakeholders. • Deal with unexpected events (illness, accident or death). Prepare for the future from: https://canadabusiness.ca/business-planning/succession-planning/F-S59-N611690-A/ Web-based Activity: In groups of three, have students go to: https://www.canada.ca/en/shared-services/corporate/transparency/access-information-privacy/publications/privacy-impact-assessments-summary-employee-experience-skills-inventory.html Ask Students: What does it say about how the federal government uses Employee Skills Inventories? Ans: These inventories are used to determine the learning, training and development requirements of persons employed in the public service and fix the terms on which the learning, training, and development may be carried out. Learning Activity Discuss with students additional ways employers use Employer Skills Inventories including: • Organizational Structure: skills can be a basis for job description systems. • Identify Gaps in Training: during times of restructuring, employees may be asked to do more, or do things differently, which may require training. These inventories can be useful. • Career Planning and Employee Development: an individual’s skills can be compared to a profile of useful traits, strengths and weaknesses. Employees can then be counselled on the skills required for advancement or on lateral developments. • Organizational integration: in national organizations, geography can limit the visibility/reputation of employees. Skills inventories can help with this so employees’ skills information can be accessed on a network. Review HR Planning Today 6.2—Attracting Older Workers. By 2030 almost one-quarter of the Canadian population will be aged 65 years and older. What do employees 50 and over generally want? 1. Flexible working options 2. Training and development 3. Job design 4. Recognition and respect 5. Performance evaluation 6. Compensation Mass customization: the ability to customize HR practices at the employee level efficiently and at low cost. Review HR Planning Notebook 6.1—Recommendations for Retaining Employees. What are some recommendations? 1. Train managers in strategies for retention. 2. Pay is not the main reason for loss of talent. 3. Implement varied flexible work arrangements, e.g., compressed workweek, telecommuting etc. 4. Reward fairly, consistently, and differentially. 5. Hold regular feedback and career development discussions. 6. Recognize that talented, motivated employees want training. 7. Deal with “slackers” and underperformers. 8. Reward seniority and performance. 9. Identify high turnover risk occupations. 10. Develop ways to train talented employees. 11. Review and decrease “dissatisfiers.” 12. Take action on talent management. Ask Students: When might an employer want to keep the names of possible replacements confidential? Ans. • To prevent competitors for the new role from resigning before they can be offered alternative positions. • To prevent changes in stock prices before a press release is held. • To avoid speculation among staff. Review HR Planning Today 6.3—Retention of Highly Skilled Workers. See HR Planning Today 6.4—Using Markov Models to Test Employee Movement and Policy Changes. Ask Students: What are the possible movements/changes that employees can experience in an organization? Ans. 1. Remain 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, lay-off, leaving voluntarily). 5. Demotion (relatively rare). Ask Students: Why are formulas and corresponding numbers important in HR? Ans. Since HR is typically seen as not having skills with numbers, e.g., training, it is essential that HR professionals can quantify their value in terms of the bottom line. Review Table 6.1—Markov Model. Learning Activity: Calculations In groups of three, have students review and work through the Movement Analysis Exercise. 1. Determine the total number of positions requiring replacements over the next one-year period. 2. Determine the impact these openings will have on current employees. Answers in chapter. Review Table 6.2—Number of Positions to be Filled. See Table 6.3—Employee Movement. See Table 6.4—Output of a Vacancy Model Exercise Review HR Planning Notebook 6.3—Using Data to Decide Whether to Develop Internally or Hire Externally. Learning Activity—Calculations: In groups of three, have students review and work. through the Vacancy Model Exercise. Ask Students: What is the specific number of external and internal employee required at each level and for the organization as a whole? Answers in text. Review HR Planning Today 6.3—Retention of Highly Skilled Workers. Ask Students: Why can organizations ill afford to lose talented employees? Ans. • They have spent time and money training workers. • Organizations can lose important knowledge that could have been passed onto a successor. • With labour shortages, firms will be competing for quality workers. Table 6.4—Output of a Vacancy Model Exercise. See HR Planning Notebook 6.2—Managing the Firm’s Internal Labour Market: Lessons from the Field. Four lessons found by professors at Simon Fraser University’s Faculty of Business Administration are: 1. Managers should recognize that there are often multiple internal labour markets typically operating in one form. 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. Review HR Planning Today 6.5—How Accurate Is Your Forecast? Review HR Planning Today 6.3—Retention of Highly Skilled Workers. Ask students if they think the “No layoff policy” of Toyota is a good idea. Why or why not? See HR Planning Notebook 6.4—Developing Effective Employee Retention Policies. 1. Forming a “retention task force” to include 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 for dissatisfaction that prompt employees to leave the organization. CHAPTER 7 Succession Management Chapter Learning Outcomes After reading this chapter, you should be able to: • Understand why succession management is important. • Trace the evolution of succession management from its roots in replacement planning, comparing the two models with respect to focus, time, and talent pools. • List the steps in the succession management process. • Compare and contrast the job-based and competency-based approaches to aligning future needs with strategic objectives. • Discuss the four approaches to the identification of managerial talent. • Describe several ways to identify high-potential employees. • Evaluate the advantages and disadvantages of the five management development methods: promotions, job rotations, special assignments, formal training, and mentoring and coaching. • Recognize the difficulties in measuring the success of a management succession plan. • Outline the employee’s role in the succession management process. • Describe the role of HR in succession management. Chapter Summary In this chapter, succession management is defined and contrasted with workforce planning. The five-step model of effective succession management includes these steps: (1) align succession management plans with strategy; (2) identify the skills and competencies needed to meet strategic objectives; (3) identify high-potential employees; (4) provide developmental opportunities and experiences through promotions, job rotations, special assignments and action learning, formal training and development, and mentoring and coaching; and (5) monitor succession management. The employee’s role in this process must be considered. HR must assume responsibility for the succession management process. Class Outline Instructor’s Teaching Notes Students’ Learning Activities The Importance of Succession Management Succession management: the systematic process of determining critical roles within the organization, identifying and evaluating possible candidates and developing them for these roles. Succession Process There must be a pipeline of talent for the most critical roles in an organization to have successful succession process. 1. The CEO. 2. The senior management team (executives). 3. Critical roles based on long-term value to the organization such as scientists. 4. Customer relationship specialists. Evolution of Succession Management Replacement planning: the process of identifying short-term and long-term emergency backups to fill critical positions. • Development of succession or replacement charts to fill key positions. • Periodically update the table of employees who might be selected for promotions if needed. Succession Management Process Links replacement planning and management development. Steps for Succession Management 1. Align succession management plans with strategy. 2. Identify the skills and competencies needed to meet the strategic objectives. • Temporary replacement • Replacement charts • Strategic replacement • Talent management 3. Identify high-potential employees. 4. Provide developmental opportunities and experiences. 5. Monitor succession management. Succession Management Process Step 1: Align Succession Management Plans with Strategy • Organizations must start with the business plan. • Using environmental scanning, managers try to predict where the organization will be in three to five to ten years. Step 2: Identify the Skills and Competencies Needed to Meet the Strategic Objectives Job-based Approach • Focus on duties, skills, job experience, and responsibilities required to perform the job. • Not adequate since jobs change rapidly. Competency-based Approach • Focus on measurable attributes that differentiate successful employees from those who are not. • Hard and soft skills. • Produces more flexible individuals. Core competencies: characteristics, such as thinking skills, that every member of the organization is expected to possess. Role or specific competencies: characteristics, such as business knowledge, shared by different positions within an organization. Unique or distinctive competencies: characteristics, such as expertise in media relations, that apply only to specific positions within an organization. Step 3: Identify High-Potential Employees Organizations use several approaches to identify managerial talent, including the following: 1. Temporary replacements 2. Replacement charts 3. Strategic replacement 4. Talent management culture Step 4: Provide Developmental Opportunities and Experiences Management Development Methods • Promotions • Job rotations • Special assignments • Formal training and development • Mentoring and coaching Promotion: an employee’s upward advancement in the hierarchy of an organization. Job rotations: a process where an employee’s upward advancement in the hierarchy of an organization is achieved by lateral as well as vertical moves. Special Assignments and Action Learning Many organizations test high-potential employees by giving them an assignment in addition to their regular duties, e.g., a manager needing international experience sent to work in China with a vendor. Formal Training and Development Most companies use lectures, seminars, and discussion groups while others use behaviour modelling and experiential learning. Also useful are role-playing, case studies, action learning, and computer-based training. Mentors and coaches: executives who coach, advise, and encourage junior employees. Step 5: Monitor Succession Management • Increased engagement scores. • Increased positive perceptions of development opportunities. • High-potential employees’ perceptions of the succession management process. • Greater numbers involved in the mentoring process. • Higher participation in developmental activities. Some internal ways to measure whether succession management is successful are: • Increased average number of candidates for key positions. • Reduced average number of positions having no identified successors. • Increased percentage of managers with replacement plans. Employee Role in Succession Management The new transactional activity between employers and workers suggests that: • When organizations develop employees, they should take into consideration employee aspirations and goals. • Employees will participate in management development programs more eagerly if their goals match the company succession plans. • Employees will train more enthusiastically if they are aware of the strategic goals of a company. • Managerial preferences cannot be the sole determinant in employee development. • Career counselling and discussions at time of performance appraisals will help ensure employee input. Managing Talent: The HR Role 1. Vacancy risk: Organizations that are unable to fill key vacant positions quickly with effective leaders may suffer. 2. Readiness risk: HR must develop employees so that when opportunities arise, there are qualified and motivated employees in place. 3. Transition risk: In addition to preparing employees for key roles, HR must develop programs to retain key employees, monitor competitors, and identify external candidates. Learning Activity Read the chapter-opening vignette “Succession Management at Edwards Lifesciences.” Ask Students: What is the primary strategy of the organization to ensure that succession management is effective? Ans. They attribute success to identification of 47 key positions, which each have two replacements ready. Learning Activity Ask Students to pair together and review HR Planning Notebook 7.1—The Importance of Succession Management. Why is succession management so important to organizations? Ans. If not made a priority, no one can be trained and gain the necessary knowledge to take over. Note: • Peter Drucker says organizations must ensure replacement for CEO. • 20% of top management will be baby boomers at retirement age in the next several years. Figure 7.1—Example of Replacement Chart. Review HR Planning Notebook 7.2—Why Organizations Have Succession Management Programs. Ask Students: What reasons do employers offer for why they do not believe in succession management? Ans. • Selecting potential leaders assumes that the same knowledge, skills, and attitudes (KSAOs) in the past will be what are needed in the future. • Succession management can be incorporated only if an organization is in a high growth position. • Assumes stable future, which is not realistic. • Assumes a single career for potential leaders, which is rarely the case now. Learning Activity Refer students to HR Planning Notebook 7.3—Internal versus External. Ask students to discuss the differences in both approaches. See HR Planning Notebook 7.4—Comparison of Replacement Planning with Succession Management. Learning Activity Assign students to work in groups on the following topics: A. Techniques for assessing employee potential. B. Management development methods: Promotions. C. Management development methods: Job rotations. D. Management development methods: Special assignments. E. Management development methods: Formal training and development. F. Management development methods: Mentoring and coaching. After each student reviews one of the above approaches, put them into groups with all six approaches in each group. Ask Students: To report on their specific approach to succession management so that all students are familiar with each process. See HR Planning Notebook 7.2—Why Organizations Have Succession Management Programs. Review HR Planning Notebook 7.4—Comparison of Replacement Planning with Succession. See HR Planning Notebook 7.6— Techniques for Assessing Employee Potential. • Performance appraisals • Assessment centre • Human Resources Management Systems (HRMS) Review HR Planning Notebook 7.5—Managerial Competencies. 1. General managerial skills and knowledge 2. Core competencies 3. Detailed job specific competencies Review HR Planning Today 7.1—Building the Brand: An Employee Value Proposition. Review HR Planning Notebook 7.7—Benefits of External Coaches. Ask Students: What are the benefits to the organization and the individual when external coaches are used in succession management? Ans. Benefits for the Organization: • Retain high performers with incentives other than financial rewards. • Develop key employees for succession planning. • Guide individuals and organizations through transition. • Change skills and attitudes for long-term sustainable results. • Give new perspectives on business experience and practices. Benefits for the Employee • Reconnect the individual with personal values or missions. • Provide clarity and focus to accelerate the achievement of goals. • Compress learning time to optimize skills by building competencies faster through one-on-one coaching. • Translate leadership theories and concepts into useful insight. Review Table 7.1—Use and Effectiveness of Leader Development Activities. Ask Students: 1. What is the most effective leader development activity? 2. What is the least effective leader development activity? Ans. 1. Special projects with one’s own responsibility is the most effective. 2. Computer-based learning is the least effective. Review HR Planning Notebook 7.8—Academy Companies. • Working abroad/international experiences. • Rotational job assignments. • Organization has special/different career development process to retain high-potential employees. • Organization prepares specific development plans for high potentials. • Organization makes lateral moves attractive to high potentials. Review HR Planning Notebook 7.9—Comparing Traditional and Emerging Career Management Concept. Ask Students: If they can think of examples of their own work experience that verify the emerging characteristics of today’s career management concepts as above. Learning Activity Divide the class into groups of five students. Ask them to identify the benefits and downsides of succession management in a small organization versus a large one. Ans. Small Organizations • If potential successors are known, then changed, it can be difficult for those employees not selected to work with co workers. • It may be harder to find the right fit for a future role if hiring infrequently, so succession planning can be good planning long term. Large Organizations • It can be difficult to keep the identities of potential successors confidential when many staff influence the decision. • A new leader may need to take charge quickly in the case of an emergency or loss of a worker, so future planning is beneficial. Instructor Manual for Strategic Human Resources Planning Monica Belcourt 9780176798086, 9780176570309
