Creating the most productive mix of workers and work could soon be easier with off-the-shelf technology offering custom solutions for managing staff. McKinsey examines the implications.
Faced with so many possibilities, most companies abandon the attempt to make rational choices and instead merely guess how best to assign employees to jobs. By treating people with diverse skills as an undifferentiated resource, these companies forfeit the chance to make substantial gains in productivity, profitability and personnel development.
Moreover, deploying employees more effectively is only the start. A manager who wants the best people to do their best work must anticipate the company's work force requirements, provide training tailored to individual goals, and reward employees for hard-to-measure contributions such as coaching. It is thus no surprise that a systematic and continuous approach to fitting the right person to the right job at the right time has long been the holy grail of work force organization. But most managers, search as they might, come up empty-handed. Few companies understand which employees are essential or how best to structure their work force. As a result, human capital--the skills and knowledge of employees--too often remains an untapped performance lever.
All this is about to change.
A new generation of tools has made it increasingly possible to fashion a more sophisticated approach to the management of a large, distributed work force. Real-time deployment tools can adjust staffing to variations in customer demand with unprecedented precision and speed. Succession-planning tools can reach deep into the company to find unsung heroes. And coming soon is software that could solve some of the most nagging challenges to the systematic organization of the work force. As personal and handheld computers reach a critical mass in the workplace, work force-management software will probably become ubiquitous.
To reap the benefits of the new technology, executives must begin with old-fashioned managerial insight. Specifically, they need to identify their pivotal groups of workers and to understand where in the employment life cycle those workers face the greatest barriers to productivity. The next step is to pinpoint the way work force problems affect the company's financial performance. Only then should executives consider which work force-organization technologies to apply.
Challenges of organizing staff
To gauge the scope of the opportunity, consider the challenges facing a grocery chain and an IT-consulting firm. The grocery chain's pivotal employees are the low-wage baggers, checkers and in-store managers who deal with customers, as well as the distribution clerks and shelf stockers. These two groups account for 60 percent of the labor costs of typical grocery stores, which therefore try to minimize employee turnover. Nonetheless, turnover rates at U.S. grocery stores exceed 30 percent a year. High turnover makes it necessary to spend more money--perhaps $200,000 per store a year, or 40 percent of an average chain store's net income--on recruitment, training and overtime. Even more important to the chain as a whole, perhaps, are the indirect costs: poor customer-satisfaction rates and low employee morale.
The IT-consulting firm, by contrast, employs mainly so-called knowledge workers, who at any one time are allocated among several projects, many with shifting and competing time lines. The firm creates value by moving each employee to the most suitable project in the appropriate sequence. Its challenge--to maintain high levels of employee utilization and completing projects on or ahead of schedule while creating a lively work environment that brings its best to each engagement--is more complicated than the grocery chain's. Better work force management provides the direct benefit of improved performance and lower labor costs as well as the less tangible benefits of establishing a reputation for reliable, innovative problem solving.
|To reap the benefits of the new technology, executives must begin with old-fashioned managerial insight.|
In the case of the grocery chain, software tools could improve the recruitment and integration of newly hired employees by developing profiles based on their background and recruitment source. Such profiles would help the chain predict turnover rates and devise customized training programs to reduce them. It might, for example, turn out that employees hired through word of mouth rather than job fairs tend to stay longer but need more training. If turnover falls, other software tools can adjust hiring forecasts.
As for the IT firm, it could benefit from an emerging class of analytical tools that use complex algorithms and artificial-intelligence techniques to shorten project completion times. By sifting through a database of employee skill sets, the tools generate staffing solutions to meet current demand and to anticipate priorities for emerging projects. The deployment of these solutions at a technology-consulting firm has cut project completion times by 10 percent to 40 percent and overall resource requirements by 25 percent to 40 percent.
A leading provider of data storage used one such software tool to examine a competitive product-development bid that had previously been running significantly behind schedule. Among other things, the tool helped the company anticipate when management intervention would be required, thus all but eliminating the frequent and time-consuming scramble to get management to sign off on major decisions. Indeed, it speeded up the company's bidding process so much that the prototype was delivered on time, ahead of those from competitors, which were forced to drop out of the running for a $300 million contract.
In our experience, the use of these tools for managing human capital can give companies a clear performance advantage, whether they compete in knowledge-intensive industries such as software and biotechnology or in traditional industries such as manufacturing and retailing. The tools provide value through cost savings from increased utilization, lower turnover and higher productivity--the result of improved training, more effective deployment and targeted incentives that reward and promote the most productive employees.
Checking the basics
Before a company can exploit the new technology, it must identify its pivotal workers, know how to improve their productivity and understand the connection between them and its financial performance.
The crucial first step is to identify your pivotal workers. In most businesses, not all employees are created equal. A subset, which can vary across business units and may change as a company evolves, always plays a disproportionate role in creating value. Our experience suggests that work forces fall into six segments: top executives, knowledge workers, middle management, skilled workers, less-skilled workers and bureaucrats. Depending on the industry, any of these groups can emerge as the most pivotal.
To identify the crucial group, consider your business model. If innovation and intangible assets generate a company's competitive advantage, for example, top management and knowledge workers are essential; clearly, a pharmaceutical company depends on the ability of its research scientists to develop new drugs. But where costs and services differentiate competitors, skilled and semiskilled workers might play a pivotal role.
Cost structures and the value chain are further pointers. Executives could, for example, ask where in the organization a doubling of productivity might generate major financial gains. They could also ask at what point in the history of the business, from start-up to expansion, its emphasis shifts to a different segment of the work force. A retail venture that was just starting up, for instance, would rely chiefly on its top executives, but expansion into a national chain would shift its focus to the middle managers who open and staff new stores.
Once a company has identified its pivotal workers, it can start to think about improving their productivity, not just once but continually. The trick is to map the biggest productivity challenges that occur as workers move through the stages of their life cycle at the company, but few businesses bother to do so. Moreover, interviews with more than 50 senior managers from a range of industries indicate that while some challenges are common to all segments of the work force, others emerge only after a company has thought through the evolution of each employee's career in the context of its business model.
|As personal and handheld computers reach a critical mass in the workplace, work force-management software will probably become ubiquitous.|
A company should then break down skill levels and retention rates by candidate to find out where to hire people with the necessary skills and how to develop them via training and on-the-job experience. Deployment, the next stage, can be a vexing problem, particularly for professional-services firms that require employees to work on several projects at once. Finally, if high attrition rates threaten overall productivity, companies can reduce them by offering workers varied incentives and continual development opportunities.
The third step is to link these work force needs with the company's financial performance. During our research we interviewed, among other people, senior logistics and transportation executives who claimed to be carrying out work force planning. When we asked what financial metrics guided their human-capital choices--deciding, for example, whether to hire full- or part-time drivers--few had an answer. These executives had drawn no connection between work force planning and financial performance and were therefore flying blind.
To trace the bottom-line impact of higher work force productivity, a company must identify the barriers to it and model their cost. At this point, managers can assess the growing number of customized software solutions for resolving specific work force problems. The tools, which can be integrated into a company's underlying IT infrastructure, fall into several categories.
Deployment tools help a company manage its cost structure by improving its utilization rates and making the most of differences in skills to match workers with jobs. These tools, which integrate staffing algorithms with project-management software, can be used in applications that range from the staffing of retail or call centers to the resolution of service-industry challenges.
The second category of promising human-capital-management technologies consists of work force development tools, which can increase productivity by enabling managers to match skills to positions, by helping companies to retain their best and most talented employees, and by charting succession planning deep within the organization. A retail grocery company, for instance, could find its next division president from among the top 10 vice presidents and its next customer service manager from among all of its top checkers.
Finally, work force-planning tools bring together internal forecasts and external trend analyses to reduce the time needed to staff and start up businesses and to integrate recruitment with training-and-development plans. Restaurant chains, for instance, could use these tools to avoid a recurring problem: building many new restaurants only to find that too few people have been hired to operate them.
In the near future, companies will be able not only to prevent such problems but also to go one step further: They will have the tools to create a sophisticated forecast of their work force needs by integrating macroeconomic forecasts--dozens of market variables--into their staffing plans. Although such tools could not have predicted the recent technology meltdown and will never anticipate serious swings in economic activity, they can refine a company's work force plans--for example, by smoothing out moderate expansions and contractions.
While a fair number of software firms offer customized solutions for the problems of managing a work force, many such applications are not yet commercially available in off-the-shelf configurations. That should change within 12 to 18 months. So far, niche players and providers of customized services have successfully targeted specific industries and functions: training and development, the staffing of projects and retention planning. But we believe that the larger enterprise resource providers might be better placed to develop or acquire applications for human-capital management.
Much as customer-relationship- and risk-management applications enabled sales managers and senior financial executives, respectively, to control customer relationships and risk profiles from the desktop, the next generation of human-capital-management software will let senior managers use human-capital data to drive constant gains in productivity.
A new era in human-capital management is approaching. Value increasingly comes from boosting the productivity of individual workers and from greater work force innovation. Meanwhile, the technological infrastructure needed to map out human capital is rapidly falling into place. By achieving the most productive possible combination of workers and work, companies can find a lasting source of competitive advantage.
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