Explorative Research into a Contingency Based Approach of Strategic Personnel Planning

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1 Explorative Research into a Contingency Based Approach of Strategic Personnel Planning Name: Caspar van Knippenberg Student number: S Address: Noord Besterdstraat JE, Tilburg Study programme: Theme: Exam Committee: Start: Graduation date: Human Resource Studies Strategic Workforce Planning Prof. Dr. J. Paauwe Dr. M. Verhagen 0

2 Abstract. Strategic Personnel Planning has been receiving growing attention over the past decades. Numerous case studies have been written and several attempts of a universal model have been proposed. This explorative research goes beyond these studies and proposes contingency based strategic personnel planning based on the contextually human resource theory of Paauwe. Several competitive, configurational and institutional contingencies are proposed as being indicative for the design and application of strategic personnel planning. Interviews are conducted in nine profit and nonprofit organizations in the Netherlands in order to determine a potentially indicative set of contingency factors. The interviews are coded using direct content analysis. The results show that dynamics of the product market appear to be indicative for the need for flexibility. Organizations that are operating in a tight labor market appear to have more developed strategic personnel planning. Although further study is needed, several labor market characteristics, institutional characteristics and configurational characteristics are potentially indicative for strategic personnel planning. This study strengthens the idea that a contingency based approach benefits the research on strategic personnel planning. Limitations and suggestions for future research are discussed. Keywords: Strategic personnel planning, contingency, workforce planning, explorative research, contextual human resource theory. 1

3 Table of contents 1. Introduction 4 2. Strategic Personnel Planning The concept and definition of Strategic Personnel Planning The process of Strategic Personnel Planning Analyzing techniques in Strategic Personnel Planning Supply analysis techniques Demand analysis techniques Intervention analysis Context dependent Strategic Personnel Planning Competitive mechanisms Predictability and stability of the product market Level of competition in the product market The configuration of the organization Structure Size Profit-nonprofit The labor market and institutional mechanisms The level of competition and the tightness of the labor market The composition of the workforce Labor contracting laws The sector Segmentation in Strategic Personnel Planning Overview of the contingency factors Method The sample Data collecting and analyzing Findings Findings regarding the contingency factors Competitive mechanisms The configuration of the organization The labor market and institutional mechanisms Findings regarding Strategic Personnel Planning Supply analysis Demand analysis Intervention analysis 37 2

4 5.2.4 Implementation General state of Strategic Personnel Planning Segmentation Findings on the relation between contingency factors and SPP components Competitive mechanisms The Configuration of the organization The labor market and institutional mechanisms Segmentation Conclusions Competitive mechanisms The configuration of the organization The labor market and institutional mechanisms Segmentation Contingency based Strategic Personnel Planning Discussions Competitive mechanisms The Configuration of the organization The labor market and institutional mechanisms Segmentation Contribution Limitations Suggestions for future research References Appendices 12.1 Interview schedule Competitive Mechanisms The configuration of the organization The labor market and institutional mechanisms Segmentation Supply analysis Demand analysis Intervention Techniques Implementation Hindering factors State, goal and focus of Strategic Personnel Planning 103 3

5 1. Introduction Strategic Personnel Planning (SPP) has been receiving growing attention, both in science as well as in the business world. Most studies on SPP focus on individual cases and describe extensive customized models of the SPP in organizations. Across these studies several SPP-steps return frequently; supply analysis, demand analysis, gap analysis and solution analysis (Anderson, 2004) in order to prepare the workforce for future needs. A best practice approach claims there is a superior personnel planning model that will lead to the best outcome in all organizations. Anderson (2004) mentions general success factors for SPP: management commitment and support, human resources staff support, employee involvement, linkage to other plans, quality planning data (accurate, current and readily available data), implementation strategy and communication. Although these factors are indeed of influence on the success of SPP, these conditions will most likely have a positive effect on all HR policies. Best practice approaches lack specific conditions for SPP. Specific organizations with specific wishes will always be in need for customized models. This statement is in contradiction with the best practice approach and assumes a contingency based approach. A contingency based or best fit approach states that if an organization has a certain characteristic, the design of its personnel planning model should have a matching characteristic. For a certain set of organizational and environmental conditions, an optimal strategy exists (Harvey 1982, p.81 in Ginsberg & Venkatraman 1985). For example, an organization in a dynamic environment should have a workforce that is able to react quickly to changes, while for an organization in a stable environment such a characteristic would be redundant. The process of SPP should contain policies to ensure that the changes are noticed and contain interventions that provide a quick reaction. Evers and Verhoeven (1999) mention that small organizations need a different oriented planning system than large organizations and organizations with fixed career patterns are unlikely to have a similar planning system as organizations without fixed career patterns. Large organizations for example focus on groups or categories, whereas small organizations are more focused on individuals (Evers & Verhoeven, 1999). Kispal-Vitai and Wood (2009) note that some forecasting instruments are more effective in stable environments or industries where long term planning is possible than other instruments. 4

6 Van Donk (1995) supports a contingency based approach by claiming that the current SPP literature and handbooks lack differentiation between situations. Potential influencing factors are: different environment or production processes, differences in urgencies, variation in type of change such as growth, stability or shrinkage and a different nature of the labor market in which the organization operates. (Van Donk, 1995) Each of these (or combinations of) situations possibly requires an own process of personnel planning in which certain parts are emphasized with more or less precision (Van Donk, 1995, p ). Comparable issues regarding different approaches to personnel planning are mentioned by Evers and Verhoeven (1999), based on the work of Geurts, Evers and Dekkers (1996) and Geurts (1995), mention several important influences in customized personnel planning; the type of organization, the labor market segment and the type of career pattern. They formulate 12 types of personnel planning based on the typology of Mintzberg (1979), the labor segment and the career configuration of an organization. These studies suggest a contingency approach that differentiates the SPP of organizations dependent on their external and internal environment would be desirable. In order to design such an approach it is necessary to identify configurational design parameters of SPP and organizational characteristics. Patterns between the two will lead to a better understanding of SPP. The scientific goal of this study is to contribute to the contingency perspective of SPP and identify patterns of coherence in the relation between the design of SPP models and organizational contextual factors. New insights in these contingency factors will lead to the development of customized applications that better align with specific organizational needs in their specific context. To support this, the following research question and research objective are formulated: Research question: Which set of contextual factors can be identified as indicative for the design and application of a Strategic Personnel Planning model? Research objective: Increase the knowledge on Strategic Personnel Planning needed to develop custom-made applications that better align with specific organizational needs in their specific context. This study will begin with an extensive overview on the subject of SPP as it is presented in previous research, the SPP process and SPP techniques (chapter 1). Secondly it will discuss why SPP models are 5

7 context dependent. Thirdly, different contextual factors will be discussed and potential requirements will be formulated (chapter 3). Using an explorative and iterative process of literature and field study these requirements are translated into design criteria of SPP. To study the requirements and design criteria, empirical data are collected via interviews in nine organizations that are supposed to vary on relevant contingency factors. Levels of these contingency factors of the organizations are assessed (chapter 5.1) and requirements and designs are distinguished (chapter 5.2) in order to study the influence of the contingency factors on SPP (chapter 5.3). Conclusions on which set of contingency factors are indicative for the design and application of an SPP model are drawn (chapter 6) and findings are discussed (chapter 7). Finally the contribution to the previous literature, limitations of this study and suggestions for future research are discussed. 6

8 2. Strategic Personnel Planning At the start of this research it is important to give an understanding of the concept of SPP. In this section the concept, the process and the techniques of strategic workforce planning will be discussed to give insights in what are the important parts of SPP. 2.1 The concept and definition of Strategic Personnel Planning In the most basic form, SPP is focused on ensuring that the organization has the right number of people with the right skills, experiences, and competencies in the right jobs at the right time (United States Department of Health & Human Services, 1999). SPP has been discussed in multiple forms mainly in a normative and prescriptive way. All types of planning rely on the use of data, either quantitative or qualitative or a combination of the two (Cotten, 2007). Lam and Schaubroeck (1998) distinguish three types of HR planning systems objectives: operational, traditional HR planning and strategic planning objectives. Operational objectives focus on the near-term work necessities and identify current capabilities and trends; traditional HR planning objectives focus on longer term demands and are based on forecasts about the future; strategic planning is based on coping with alterations in strategy and the influence of these changes on the demand of employees. Van Donk (1995) claims that a workforce planning system/ or a definition should contain a relationship between personnel planning on one side and organizational- planning, - activities and/or -strategies on the other side. This characteristic indicates that strategic workforce planning is related to other organizational characteristics and gives it a strategic intent. Other workforce planning systems such as mathematical planning mechanisms, which calculate the number current and future amount of employees, lack the connection with the organizational activities and act as an isolated process (Roelvink, 2007; Van Donk, 1995; Evers & Verhoeven 1999). When the present study refers to SPP or strategic workforce planning, it is because of the relationship with organizational strategy. Evers and Verhoeven (1999) describe that personnel planning happens at three levels in an organization; the macro-, meso- and micro- perspective. The micro perspective focuses on inflow, through flow and outflow in different functions. The meso perspective discusses the planning at the different departments. The macro perspective focuses on the interaction between the organization as an entity 7

9 and the external environment. In this perspective the organization itself is a black box and only the total of out and inflow is measured (Evers & Verhoeven, 1999). Research on strategic workforce planning has focused both on the process as well as on the results of the process. In most studies, the process is based on four steps; the supply analysis, the demand analysis, the gap analyses and the solution analysis (Anderson, 2004). These concepts are discussed in section 2.2. Emmerichs, Marcum and Robbert (2004) propose three goals of workforce planning. Firstly, it should contain a clear representation of the workforce that is needed to carry out the strategic intent. Secondly, it should develop an aligned set of human resource policies and practices to ensure the appropriate workforce will be available. Thirdly, it needs to establish a convincing rationale to create support in the organization. This support is necessary to implement the changes in HR policies and programs (Emmerichs et al, 2004). Evers (2011) uses the following definition of SPP: the preparing, designing, and implementing of strategic policies around the inflow, through flow and outflow of personnel, in order to achieve an effective and efficient allocation of labor (p.37). The International Public Management Association for Human Resources (IPMA-HR, 2002) uses the definition: Workforce planning is the strategic alignment of an organization s human capital with its business direction. It is a methodological process of analyzing the current workforce, identifying future workforce needs, establishing the gap between the present and the future, and implementing solutions so the organization can accomplish its mission, goals and objectives (p.10). This definition is more in line with the current study because it contains the three aspects of strategic workforce planning discussed in the above section; the process, the goal and the strategic intent. From a contingency perspective one would expect contingency factors (either explicitly mentioned or a reference to the existence of contingency factors) included in the definition of SPP. This definition (with the exception of the business direction) lacks contingency factors that influence SPP. Currently a definition containing contingency factors is not found the literature. 2.2 The process of Strategic Personnel Planning As mentioned earlier, Anderson (2004) describes that most of the basic workforce planning models are based on four steps. The supply analysis of the current workforce consists of analyzing the current internal supply for labor based on qualitative and quantitative data (Evers, 2011). The demand analysis 8

10 measures the future activities, workloads and describes which competencies are necessary in the future. The gap analysis identifies the mismatch between the supply now and the demand in the future. The solution analysis is the developing of strategies to close the competency gap. The models of Colley and Price (2008), Stokker and Hallam (2009), Kispal-Vitai and Wood, (2009), Roelvink (2007) and Cotten (2007) are all based on these four analyses (figure 1). These analyses focus on the supply, demand, gap and gap-solution of competencies (individual knowledge, skills and attitudes). Supply analysis Demand analysis Gap analysis Solution analysis Figure 1. Strategic Personnel Planning. Some adaptations are made to the model by several authors. Existing practices will already have an influence into the future composition of qualities and quantities of personnel. Therefore, several studies (Roelvink 2007; Emmerichs et al., 2004) explicitly mention a step in the model that translates the current situation into the future, if HR policies and practices remain unchanged. The future gap should be based on the future supply (after the influences of current HR practices) and the future needs. Roelvink s (2007) first step is the mapping of external and internal factors such as mission, vision, strategy and developments. A similar remark is made by Colley and Price (2008). They note that changes in the environment and core business activities are the drivers for workforce planning. Cotten (2007) also describes the importance of an internal and an external environmental scan. She mentions external macro factors such as industry trends, public sector employment trends, labor market forecasts, technological trends and external micro trends such as local labor supply, strength of the local economy, the appeal of the area to prospective employees, the political environment and demographic composition of customers and employees. Furthermore, internal analysis can focus on workforce trends, HR transactions, organizational structure, organizational culture, employee morale and performance levels. These internal and external contexts are of influence on both the supply and the demand of personnel. Objectives are set in the context of internal and external environment, and the values of the organization (Lam & Schaubroeck, 1998). Cotten (2007) introduces a seven steps plan for strategic human resource planning, to align organizational human capital with its mission. She recommends that before the internal and external environmental scan, the strategic direction and core capabilities of the organization should be defined. 9

11 Becker, Huselid and Beatty (2009) describe that organizational strategy should be the starting point of all human resource policies. The strategic direction, the internal and external environmental scans describe capabilities that are important for the organization. They refer to the term strategic capabilities as describing business processes absolutely essential for executing a firm s strategy (p.22). Capabilities refer to organizational characteristics, whereas competencies refer to individuals characteristics. The organizational capabilities determine what competencies (knowledge, skills and attitudes) are needed. The strategy, external and internal environment provide insights in possible changes that lead to demands for different competencies (Cotten, 2007). In het model there is an increased attention to the implementation of the gap closing strategies. In line with other models (Wan, Chen & Kuriger, 2011) the necessity to evaluate the effectiveness of the gap-closing actions and interventions is mentioned by Cotten (2007). In conclusion, many aspects of strategic workforce planning are mentioned in the literature: organizational strategy, the internal and external environment, supply analysis, estimations of the future characteristics of the current workforce, future demand analysis, workforce strategy, gap analysis, the solution analysis, the implementation and the evaluation. Furthermore, in the existing literature there are numerous references of contingency factors influencing these parts of SPP (f.e. Cotton, 2007; Colley and Price, 2008; Kispal-Vitai & Wood, 2009). Figure 2 is an overview of the literature described above based on the work of Anderson (2004), Kispal- Vitai and Wood (2009), Cotton (2007), Wan, Chen & Kuriger (2011), Roelvink (2007), Emmerichs et al (2004), Becker and Huselid (2009), Colley and Price (2008), Stokker and Hallam (2009). In line with Cotten (2007) and Becker (2009) the model starts with the strategic direction of the organization. All human resource policies should start with the organizational strategy (Becker et al., 2009). The strategy, external and internal scan determine what capabilities are important for the organization. The capabilities determine what competencies (knowledge, skills and attitudes) are present in the organization and what competencies are needed in the future. Furthermore, describing organizational missions, directions, goals and visions gives an opportunity to evaluate the contribution of the SPP to the organizational goals. The model is not presented as the way an SPP model should be, but as an 10

12 overview of the components and a ranking order that previous literature mentioned as relevant factors/aspects. Define strategic direction Internal and external environmental scan Define organizational capabilities Supply analysis of the competencies Forecast future characteristics of competencies when policies are unchanged Demand analysis of future desired competencies Gap analysis Solution and intervention analysis Implementation Evaluation Figure 2. The process of SPP based on Anderson (2004), Kispal-Vitai & Wood (2009), Cotton (2007), Wan et al. (2011), Roelvink (2007), Emmerichs et al (2004), Becker & Huselid (2009), Colley & Price (2008) and Stokker & Hallam (2009). 2.3 Analyzing techniques in Strategic Personnel Planning Lavelle (2007) claims that the analyzing techniques used in SPP have moved from a basic gap analysis to workforce analytics, modeling and forecasting and segmentation. Segmentation is the most sophisticated and differentiates roles and skills based on their vitality to the business success (Lavelle, 2007). Kispal-Vitai and Wood (2009) discuss several tools and techniques to analyze the current supply of personnel and future demand for personnel. They note that these tools often are very quantitative in nature. Qualitative information on competencies is more difficult to insert in supply and demand analyses but there are techniques that provide the possibility. 11

13 2.3.1 Supply analysis techniques Before analyzing the internal supply of personnel, a type of inventory of the knowledge, skills and abilities of the members and some basic demographics are essential (Kispal-Vitai & Wood, 2009). The supply analysis of the current workforce consists of analyzing the current internal supply for labor based on qualitative and quantitative data (Evers, 2011). Kispal-Vitai and Wood (2009) discuss several methods to determine the internal supply of personnel. Stock and flow models follow the paths of employees to predict the future composition of the workforce. Wastage analysis measures the difference between employees leaving and employees entering, while stability analysis measures the amount of employees staying during a specific period. Replacement charts is a more qualitative supply analyses technique. It lists jobs, the number of employees, skill, knowledge and abilities, readiness and willingness to move to a certain position. Other supply analyses describe and predict people movements in organizations to determine the future situation of personnel supply and their competencies. Succession planning as a supply analysis technique involves having a clear idea of employees which employees are able to fill vacancies Demand analysis techniques Kispal-Vitai and Wood (2009) give multiple approaches to demand forecasting and make the distinction between judgmental methods and statistical methods. Judgmental methods are direct managerial unit forecasting and statistical methods are based on hard data such as cash flows and rate of return. In unit forecasting managers decide the amount of employees they need. This can be bottom-up and/ or topdown. In the best guess approach, the need for employees is the total of the guesses of all managers. Trend projection is based on finding a business factor that is related to the desired number of employees. Demands can also be based on historical ratios. The Delphi technique uses the opinions of experts to find consensus on the demand. In the nominal group technique each member writes down ideas and these will be discussed in a group to find consensus. A number of qualitative factors can be incorporated in this technique. In scenario analysis, scenarios of the future workforce are predicted and turning points and crucial factors are identified as well as possible interventions. These methods are judgmental because it involves managerial decision making and are based on subjective evaluation. 12

14 Time series and work-studies are statistical methods for measuring demands. Time series analysis examines trends in the environment to define the future employment need. Work-study is the technique which studies both the work-process and the individual activities of the employee to determine the total demand of work. In time series analysis coupled with productivity trends, the changes in productivity of employees are a factor in the analyses. Regression analysis models determine quantitative needs in different categories in the organization. These authors mention two techniques that combine judgmental and statistical models. Balancing equations is a regression technique which includes variables that determine staffing requirements. Based on experts judgments subjective weights are assigned to these determinants. The combination technique uses the number of staff, current turnover, expected growth in turnover and productivity improvements to determine the future needed number of staff Intervention analysis Based on the work of Mello (2005) Kispal-Vitai and Wood (2009) distinguish interventions in case of shortages in employees and competencies or interventions in case of a surplus. When shortages occur, managers can decide to recruit new employees, offer incentives to postpone retirement, rehire retirees, attempt to reduce staff turnover, overtime work for the current staff, subcontract work out, hire temporary staff and/ or redesign job processes. In the case of surpluses, managers can freeze the hiring of new employees, stop replacing leavers, offer incentives for early retirement, reduce working hours, leave of absence for voluntary service, across-the-board pay cuts, lay workers off, reduce outsourced work, increase employee training, switch to variable pay systems and/or expand operations. Roelvink (2007)mentions that the interventions can be at the individual level such as an individual training and development program and on the organizational level such as changing the job structure, mobility centers and organizational image. 13

15 3. Context dependent Strategic Personnel Planning The previous section gives an overview of the concept of SPP as well as different components and techniques of the SPP process that are found in the literature. The question remains whether any model is applicable as best practice for all organizations or whether different organizations require a different design of the model, as suggested by Van Donk (1995) and Evers and Verhoeven (1999). In other words, are there organizational external and internal contextual factors influencing the organizational requirements and composition of a model of SPP? Multiple studies have suggested that the design and application of SPP is dependent on the external and internal organizational environment (Van Donk, 1995; Evers & Verhoeven, 1999; Kispal-Vitai & Wood, 2009). However none have distinguished clearly what these contingency factors are. In this section, different potential factors that affect organizations will be proposed (contingency factors) as well as related design parameters of an SPP model. The aim of this exploratory study is to contribute to the literature available on context dependent SPP by providing insights in contextual factors that potentially influence the design and application of SPP in order to better develop custom-made applications that better align with specific organizational needs in their specific context. To support this study, the following research question has been formulated: Which set of contextual factors can be identified as indicative for the design and application of a Strategic Personnel Planning model? To answer this research question it is important to not only look at what happens in the organization, but also to analyze what shapes the SPP, to determine what problems organizations are facing and what organizations require from SPP. A useful theory to gain insight into contextual factors influencing SPP is the contextually based human resource theory, described by Paauwe (2004) and presented in figure 3. This theory states that the best fit regarding a certain HR policy is dependent on a number of contextual factors. These factors are combined in three mechanisms and influence the shaping and nature of human resource practices; competitive mechanisms, organizational configuration and institutional mechanisms. The contextually based human resource theory of Paauwe is further presented in this study with a focus on SPP in order to determine contingency factors. When applying the contextually based human resource theory on SPP, the competitive mechanisms explain the way SPP is influenced by demands arising from product market combinations and the 14

16 appropriate technology. Due to competitive forces, organizations are forced to perform at certain demands of efficiency, effectiveness, flexibility, quality, innovativeness and speed (Paauwe, 2004) The institutional mechanism consists of the social, cultural and legal context which also influences the demands of organizations on the SPP model. Paauwe identifies institutional demands such as societal views on fairness and legitimacy with regard to work, time, money, know-how and participation as impacting on the shape of HRM practices and policies. Figure 3. The contextually based human resource theory (Paauwe, 2004, p.91). The author describes the configurations of the organizations as the outcomes of past choices of strategy in interaction with the way in which structuring issues were originally posed and the kind of organizational culture this has engendered (p.91). He refers to the concept of administrative heritage (Bartlett & Ghoshal, 1989) and the construct of path dependency (Barney, 1995) to explain the organization is formed by historic decisions that influence the current human resource policies. Paauwe (1989) discusses that the structural configuration (based on the typology of Mintzberg, 1979) influences HR practices. It is important to mention that contextual factors are not deterministic. The dominant coalition is responsible for making decisions in shaping and selecting the SPP instruments that contributes towards 15

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