Defining the Desired Future State

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 competitors’ tactics and strategic intentions also can represent an important qualitative input.

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.

Finding Value through Business Impact Modeling

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 outcomes: productivity, profitability, quality, and customer retention, among others.

Knowing the human capital drivers of value is essential to effective strategy making. For one thing, it prevents mistakes. For example, a change in business strategy may seem to dictate certain changes in workforce management practices, but what if those practices are the same ones that are most responsible for high performance? In that case would it not be a big mistake to change them? Without a formal assessment of the impact of human capital practices on business performance, organizations remain in the dark about the likely impact of their changes no matter how reasonable those changes appear to be. Getting all the facts, including facts about the business impact of human capital attributes and practices, is essential for good strategic decision making.

Business Impact Modeling is also useful in anticipating the future because, like ILM analysis, it involves statistical modeling. Whereas ILM models focus on workforce outcomes, business impact models focus on business outcomes. They enable decision makers to anticipate the likely effects of changes in workforce practices and characteristics on business performance. For example, a company might ask: To what extent will customer retention be hurt if we accelerate the rate at which our employees rotate through customer-facing jobs?

Don’t Rely Exclusively on One Approach

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.

The next section provides more detail about the Business Impact Modeling approach. That is followed by an in-depth case study illustrating its application to the broader process of building a human capital strategy.