Understanding internal labor market dynamics is the starting point for building a human capital strategy. Like the business strategy it serves, a human capital strategy is all about the future. It is a plan for creating future value through the right workforce and the right workforce management tactics. Building these things depends on the answers to three questions:
Where are we now? What is our workforce, what internal labor market dynamics is it experiencing, and what are our most influential workforce management practices?
Where do we want to go? The business strategy seeks to achieve a specific vision. What are the implications of that vision for human capital?
What creates value? What workforce attributes and what human capital practices drive business success?
Knowing where a company is now and where it needs to be while closing the gaps between the two is what the process of building a human capital strategy is all about.
As was discussed in Chapter 5, Internal Labor Market (ILM) analysis provides a wealth of facts about the current state of an organization’s workforce and the management practices that influence it. It also provides insight into the future. It does these things in two ways: by documenting workforce-relevant trends that can be expected to continue and by using statistical models to forecast the future state of the workforce in light of those trends. Those models help identify the causes and consequences of workforce dynamics. Hence, they can be used to predict the results that are likely to follow a change in one or more of the causes of those dynamics. Let’s say an organization
How many new recruits will advance into management positions within five
How much will the company’s retention rates and compensation costs change as a result of the new hiring policy?
The modeling part of ILM analysis provides a complete picture of how the human capital system can be expected to change as a result of a single policy change such as a new hiring practice. Organizations can be a lot
Of course, not everything about the current state can be known through quantitative ILM analyses. Those analyses have to be supplemented with other facts and insights from a number of sources, such as focus groups, surveys, and interviews of
Defining the desired future state has been largely a qualitative exercise that relies on expert opinion and experience. Those who are most knowledgeable about the business are asked to think through the workforce implications of their current or soon to be implemented business strategy. Interviews, surveys, focus groups, and structured planning meetings are familiar ways to obtain those qualitative data. Further, selected customers and suppliers may be asked for their views on how the organization ought to be and what they seek from the workforce. Due diligence on
A second approach to defining the future state is quantitative. As was just discussed, quantitative ILM analysis can provide clear cues about what a desired state would look like from the perspective of workforce management. However, another quantitative approach is germane to specifying the desired future state. We call that approach Business Impact Modeling SM .
Business Impact Modeling is a quantitative method that analyzes the running record of business performance with the goal of identifying the workforce characteristics and management practices that are the strongest drivers of a company’s most desired and most important business
Knowing the human capital drivers of value is essential to effective strategy making. For one thing, it
Business Impact Modeling is also useful in
Although qualitative and quantitative approaches to defining the future state of a company can be used independently, they are best used in combination. Indeed, throughout the strategy-making process qualitative and quantitative data complement each other to provide the most fully informed strategic decision making.