Planning with People in Mind

STRATEGIC PLANNING

by D. Quinn Mills
From the July 1985 Issue
Given the choice, when would you rather discover that your business strategy is
unrealizable: After the fact or while the plan is still on the drawing board? The answer is
obvious, of course. Yet a surprising number of executives fail to follow through on its
logic. By closing their eyes to the benefits of long-range human resource planning, they
heighten the risk of unpleasant, and costly, marketplace failures.

For many of their peers, however, people planning is becoming standard operating
procedure. Innovative efforts to manage morale and improve individual and
organizational performance complement traditional practices such as staffing forecasts
and succession planning at their companies. And links between human resource
activities and the strategic planning process are rapidly being forged. Moreover, top-level
officers at these companies are likely to credit people planning for its part in boosting
profits, even if the contribution cannot always be qualified.

This article provides a firsthand report on the changes taking place in the management of
human resources. Drawing on a survey of human resource activities at large companies
as well as experience in the field, the author analyzes current practice, illustrates the
diversity that characterizes the planning processes at sophisticated companies, and gives
readers an inside view of people planning that works.

/
G
eneral Electric had been engaged in formal business planning for several years before it
began to take a longer-term view of human resources. In the interim, GE had faced a big
problem as its business plans directed corporate resources to new products
and technologies. “I didn’t realize it at the time [that is, in 1970],” Reginald
Jones, GE’s former chairman, told me, “but we were a company with 30,000
electromechanical engineers becoming a company that needed electronics
engineers. We didn’t plan for this change in 1970, and it caused us big problems by the
mid-1970s.” Partly as a result of this experience, in the late 1970s GE began to ask its
managers to plan for its human resource needs.

Similar costly hitches attributable to a lack of “people planning” are easily found.
Consider, for example, the experience of a large multinational aluminum company
planning to build a sophisticated computerized smelter in Brazil. The new technology
had been a great success in the company’s home country. But management ultimately
realized that in Brazil it would be unable to find or train the computer technicians and
service people needed to run such a facility. Plans were then revised at considerable cost
to adapt the facility to the local labor force.

A large defense company faced its “people” crisis when it received a demanding
government contract for which it had done little personnel planning. The company was
forced to drain engineers and managers from other divisions, give them responsibilities
far above their competence, and mount a costly rapid-hiring effort. The project survived,
but the excess strain and high costs led top management to include a human resource
component in its business plans. Since then, the company has also used human resource
planning to avoid abrupt layoffs that could adversely affect the whole community.

Partly because of experiences like these, many American companies have begun to plan
for their professional, managerial, and technical personnel. The scope of this activity
varies widely, of course, and at some companies planning still means little more than
head-count forecasts and a succession plan for the CEO. But a growing number of senior
executives have been rethinking their companies’ human resource planning in two
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important regards. First, they are supplementing familiar hiring and promotion activities
with innovative efforts to enhance corporate performance and boost employee morale.
And second, they are forging new links between these activities and their long-term
business goals.

How a company forges these links depends in large part on how its management views
planning. As we will see, some executives like informal methods, while others prefer
written memos and plans. But whatever form the process takes, the most critical element
is management’s appreciation for the ways in which its human resource decisions affect
the company’s ability to achieve its business plans—and vice versa. Thus corporate
blueprints, however roughly drawn, are likely to contain some version of the feedback
loops that characterize my model of the people-planning process.

In the pages that follow, I will examine instances of successful people planning and
discuss its implications at greater length. First, however, let us review current practice in
the field.

Why Companies Plan for People

The trend toward human resource planning emerges clearly from my survey of planning
practices in large companies as well as from other studies and conversations with
corporate officers.1 (See Exhibit 1.)

Among respondents to my survey, 40%

Exhibit 1: A Survey of Human include a human resource component in
Resource Planning in Large their long-term business plans. A somewhat
Companies larger group, just below 50%, draws up a
To ensure that the sample would be formal management-succession plan, and a
characteristic of large American similar proportion prepares training and
companies as a whole, I chose development plans for managerial
approximately 11% of the 2,625 U.S. employees. In contrast, only 15% of the
parent companies listed in Dun’s
Directory of American Corporate respondents reported that they do no people
Families. Each of the randomly selected planning at all.
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291 companies in the sample reported Typically, planning horizons fall into
sales of $50 million or more, conducted industry-related patterns, with formal
business from 10 or more locations, and human resource plans following the time
had a controlling interest in one or more line established by a company’s business
subsidiaries. plan. (Some 89% of the respondents prepare
Because I also wished to minimize the a long-term business plan.) Business plans
possibility that professional attachments in construction and service companies, for
would color the respondents’ replies, I example, tend to be short term, while in
directed the survey mostly to line mining, transportation, communications,
managers, as the following breakdown and utilities, managers are likely to plan five
indicates: or more years ahead. (Exhibit 2 gives the
planning horizons by industry for
companies in the survey.)

Executives at the sample companies

received telephone calls during the
summer of 1983. Some 77% replied to
inquiries in 20- to 30-minute
conversations. While this rate of
response would be high in any case, it is
especially striking in contrast to the 14%
to 50% response rates usually registered
in surveys.

/
Exhibit 2 Business Plan Horizons for Sample Companies

I based the survey on the notion that people planning is mainly a matter of challenge and
response: companies facing occupational shortages or anticipating major business
changes would respond by taking a careful look at their human resource needs. So in
interviews I asked managers about their expectations. Were personnel shortages
anticipated? Were competitors pressing hard on the company’s heels? Were technological
changes altering the skills their people needed? If so, then planning would surely follow.

And to a degree this hypothesis is correct: managers who anticipate competitive and
technological challenges do plan for the effects of these changes on their people. But
other managers, equally aware of coming changes, do not engage in people planning.
Challenge alone is not enough to elicit a response.

Corporate size and strategic intent also fail to differentiate companies that plan from
those that do not. Larger companies are no more likely to plan than smaller ones; and
companies pursuing rapid growth are no more likely to plan than those that are simply
trying to hold their own. What then explains the difference?

The explanation, I find, lies less in how a company’s managers perceive the challenges
facing them than in how they perceive planning. The companies engaged in people
planning do it because their top executives are convinced it gives them a competitive
/
advantage in the marketplace. Thus they adopt planning because they believe it makes
their company more flexible and entrepreneurial, not because the environment forces it
on them.

Managers involved in human resource planning have difficulty understanding how other
companies can do without it. “Our growth is related to talent and training,” said one
executive. “We prepare for the future to eliminate surprises,” added another. “It is basic
to the planning process,” said a third, “because it is easier to save capital than people.” “It
is our number-one priority,” said a bank president, “absolute, unquestioned. It is the
most important thing we do in terms of our productivity. How can a company be
successful without people planning?”

In contrast, managers who resist planning do so because they believe it is costly and
ineffective. They often associate planning with bureaucracy, and many remember
unhappy planning experiences from years past. “I’ve told my staff to quit talking to me
about human resource planning,” said one executive. “We can’t plan for people because
we do a miserable job of business planning. And I don’t want another nest of strategic
planners in the company.”

When planning gives the wrong directions or becomes too bureaucratic, of course it
deserves to be condemned. But companies that do the best job of people planning usually
avoid these problems by keeping the process as informal as possible and leaving the
responsibility in the hands of line officers. Moreover, managers who dismiss people
planning out of hand may be short-changing their companies and their employees.

During the 1981–1982 recession, for example, more than half the companies in the
survey had to lay off middle managers. But those companies in which people planning is
most developed minimized these reductions, partly through hiring freezes, attrition, and
other forms of advance action.

/
Similarly, 72% of the survey respondents who practice human resource planning are
certain that it improves profitability. And 39%, or more than half of the human resource
planners, insist that they can measure the difference on the bottom line. (It is probably
no surprise that the companies doing the most wide-range planning are also the most
likely to measure quantitatively the impact of their human resource efforts.)

Survey data also allowed me to analyze the profitability of the companies that include
human resource goals in their business plans compared with those that do not.
Profitability rests on many factors other than planning, of course. Yet on balance, when I
compared companies in the same broad industrial categories, those that have such goals
in their business plans are the more profitable. Thus the survey corroborates the intuitive
judgment of those who link people with profits.

Evolving Processes
For comparative purposes, I grouped the sample companies into five stages, based on
three criteria: 1) the number of people-planning elements used in the company, 2) the
degree to which human resource plans are integrated into the business plan, and 3) the
expressed amount of interest in and commitment to the planning process. The greater
the number of elements, the degree of integration, and the degree of interest, the higher
the stage to which I assigned the company.

Each stage represents a point along a continuum. At one end are the companies that do
little or no people planning; at the other are those that integrate long-range human
resource planning into their strategic business plans. The majority of the survey
companies fall between these two extremes, as Exhibit 3 indicates.

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Exhibit 3 Five Stages in Human Resource Planning

Stage 1 companies have no long-term business plans, and they do little or no human
resource planning. Several are family companies and tend to be run paternalistically.
Their managers often build morale by traditional methods such as parties and picnics and
show little interest in planning. “There are plenty of people in the local labor market,”
said one executive, “We go on faith.”

Senior managers at Stage 2 companies tend to be skeptical of human resource planning,

even though each of their companies has a long-term business plan. Some, especially
those “managing for survival” in declining industries, think people planning is not very
realistic, while others see it in limited terms and equate it with head-count forecasts. “To
most companies, human resource planning is basically forecasting,” said one executive.
Still, a number of Stage 2 company managers see that people planning is becoming more
important and believe there is a need to do more.

Respondents at all Stage 3 companies cited several people-planning components in

addition to longer-term staff forecasts that project human resource needs three to five
years out. For the most part, however, they do not integrate these activities into the long-
range business plan. /
Stage 4 companies do a good deal of people planning, and their senior managers typically
are enthusiastic about the process. “People are our principal asset,” said one. “Without
good people our company can’t do a thing.” “A well-managed company must emphasize
it,” said another. “We should be doing more. We often fall short of having qualified
people ready when we need them.” All Stage 4 companies practice long-term planning,
and 87% have at least one human resource component integrated into the long-range
plan.

At Stage 5 companies, human resource components are an important part of the long-
term business plan. Almost all do formal management-succession planning, and 94%
engage in forecasting activities of some kind. Predictably, all these companies are highly
enthusiastic about human resource planning. As one corporate executive commented,
“HRP is our number-one priority—the most important thing we do relative to
productivity. To get people involved, HRP has to be alive and credible.”

To illustrate the differences among companies at various stages, consider the pattern that
emerges from the respondents’ replies to questions about their hiring and retraining
practices. As Exhibit 4 indicates, there is a quite steady progression from Stage 1
companies’ focus on hiring and training as needed to Stage 5 companies’ emphasis on
anticipatory action.

/
Exhibit 4 Time Frames for Personnel Decisions

Thus managers at Stage 1 and 2 companies tend to hire or retrain people only when they
have immediate vacancies, while those at Stage 4 and 5 companies often look as far as
three to six years ahead. These differences are marked for scientific and technical
positions, and they are even more dramatic for managerial and professional personnel.
For example, some large companies have recruited a number of graduating electronics
engineers, with the expectation that the payoff from their contributions will come in 5 to
10 years. Thus the managers at these Stage 5 companies seem to be applying the same
time frame to their human resource investments that they have commonly used for
research and development projects and large-scale capital investments.

Succession planning, or the identification of people to fill key administrative positions, is

probably the most widely used building block in human resource planning. And it, too,
reflects a full range of responses. At one extreme are the companies that do no succession
planning other than replacement planning. At the other are Stage 4 and Stage 5
companies that gain competitive advantage from planning for all their employees, not
just top executives.

Despite the widespread use of formal and informal succession plans, only about one
company in ten integrates succession into its long-term strategic plan. Apparently many
executives conceive of succession plans as nothing more than a way of coping with
possible crises such as resignations or serious illnesses. If these executives thought about
the plans’ potential for orderly career advancement, however, the wisdom of
incorporating them in their business plans (which identify opportunities and therefore
promotion possibilities) would be obvious.

Beyond preparing for disasters, succession planning has two important advantages. First,
it spotlights people in the ranks, potentially enhancing their careers by calling them to
top management’s attention. Second, and even more critical, it identifies and directs
management’s attention to possible costly vacancies that cannot readily be filled.
/
Like all aspects of planning, succession planning has its pitfalls, of course, including the
possibility that a key subordinate will be listed for several management slots. But these
snares should not deter executives from using them to develop a more competitive work
force.

View from Within

Although I have used human resource policies and practices as criteria for categorizing
companies, these activities are only building blocks for individual systems. In practice,
people planning has many sources and takes various forms, as companies develop
distinctive ways to meet their needs, experience, and business strategies.

The ways in which companies link people planning to long-term strategic business
planning vividly reflect these differences. For example, some companies request formal
human resource plans from their division managers and review them at regional or
group-level corporate planning meetings. At other companies, where people planning is
woven into day-to-day operations, the link may be nothing more formal than the fact
that the corporate vice president of personnel sits in on strategic planning meetings and
raises human resource issues.

Even companies that do the most advanced people planning show considerable
divergence in their planning processes. Some carefully build the process around
sophisticated components, such as computerized personnel-data systems, skills
inventories, career and organizational development plans, environmental-scanning and
trend analyses, competitive work force analyses, and alternative-future scenarios. In
other companies, however, the process may focus on one or two components, such as
succession planning or executive selection and development. (The range of planning
practices among Stage 5 companies is described in Exhibit 5.)

Whatever form a company’s people planning

Exhibit 5: No One Way to takes, however, the involvement of line
Plan managers is a must. People planning may
benefit significantly from staff support, of
/
People planning takes many forms. course. Usually, in the best-organized
Some Stage 5 companies find an processes, staff people analyze problems and
informal and decentralized approach identify options. But in the end, people
best suited to their needs, while others planning is a line responsibility.
opt for more structure. What matters
most is achieving a fit between top
management’s style and the planning “People and Productivity,” a study published
process it chooses so that the by the New York Stock Exchange in 1982,
company’s human resource activities suggests one reason for line managers’
mesh with its culture. involvement. Based primarily on a survey of
American industrial corporations, the report
To illustrate, consider these two identifies 15 common human resource
examples of sophisticated people activities. Although some are training
planning.
matters, a large number, such as individual
The James Company is a large, goal setting, appraisal and feedback, job
decentralized multinational with redesign, quality circles, and so forth, affect
divisions and subsidiaries throughout the organization’s day-to-day relations with
the world. Each operating company does its employees. Thus line management has to
its own planning, while the CEO has the be part of the people-planning system.
job of conceptualizing corporate
strategy. A small staff with expertise in Involvement can occur in different ways,
finance, technology, and personnel turns
these concepts into plans. however. Line management may submit a
business plan to the corporate staff analysts
The company’s human resource who then request modifications.
planning is likewise decentralized and Alternatively, the staff may prepare reports
informal; discussions and minimal on expected developments (such as
reporting constitute the planning occupational shortages and surpluses, life-
process. An international skills group style changes that could affect attitudes and
works with company and regional performance, and government regulations)
personnel to coordinate skills
inventories. And people planners from that it circulates to division managers. Then
each division and subsidiary meet all these line officers, with their staff, prepare a
plan to deal with the identified issues and
send it back to corporate staff for review.
/
over the world through the company’s Getting operating managers to invest time
personnel network to discuss human in the planning process can be difficult.
resource issues. Helping managers look beyond numbers or
head-counts to development, morale, and
Human resource planning at the performance issues, breaking away from job
corporate level focuses on policy descriptions in thinking about future skill
development in three key areas: 1) the
identification and appointment of senior needs, and escaping the tyranny of sales
managers to implement business forecasts with their implicit message that
strategies, 2) the incorporation of people are simply a derived demand are
people-related information into strategic, among the problems senior executives cite.
operational, and succession planning, To make human resource plans more than
and 3) the design and review of shallow appendages to the strategic business
personnel policies to support strategy plan, however, managers must master these
implementation.
difficulties.
Human resource building blocks used at
the corporate level and by the individual Identifying the payoff from human resource
companies include head-count planning planning in improved organizational
and forecasting, environmental performance is one way to try to overcome
monitoring, and training and resistance. If line executives see plans as “a
development programs. These are not graphics exercise,” in GE Chairman John
formally related to the strategic-planning
process, which focuses on management- Welch’s words, they simply will not support
succession planning and the worldwide the process.2 Also, managers need adequate
skills inventory only. information about legal developments,
employee mores, and other external factors
Rising managers receive profit-and-loss to plan intelligently for hiring, motivation,
responsibilities early in their careers, performance, and morale.
and their candidacy for high-level,
general management positions is Significantly, companies that show the
measured by how well the units perform.
highest commitment to human resource
The planning process at Webb Company, planning are also those that share the most
a large, successful high-tech company, information with their managers and are the
is highly centralized and carefully most likely to help them make sense of their
/
structured. Formal links between the environment. For example, managers at
human resource function and the Stage 1 companies reported that, for the
strategic-planning process go back to most part, they try to keep up with legal,
the late 1960s, when management legislative, and lifestyle trends on their own.
devised a concurrence/nonconcurrence Conversely, 77% of those at Stage 5
option for corporate personnel. Under
this system, personnel is a decision- companies rely on their organizations for
pushing function with real influence on half or even most of their information.
decision making. If the corporate staff
disagrees strongly with a business
strategy, it can stop the plan until the
People Planning That Works
issues are resolved by top management. Many companies incorporate human
By using the “silver bullet” of resource goals in their long-term business
nonconcurrence, the staff can even kill planning, and about half of those surveyed
an unfit program; if it chooses not to do require staffing forecasts. But few include
so, it commits itself to the plan by the development activities and costs that are
default. a crucial part of long-term staffing
strategies. Thus the people-planning process
The company separated strategic and is often seriously incomplete.
operational planning during the mid-
1970s and in 1982 introduced a new
business-planning system to encourage When planning stops with objectives and
entrepreneurship and minimize short of implementation, the business
bureaucracy. With this reorganization advantages it provides are likely to be lost.
strategic planning became a corporate- Consider, therefore, how one high-tech
level, top-down process, limited in detail company avoided this common pitfall in its
and focused on the investment-planning approach to a crucial sales-force planning
cycle. At the same time, the company issue.
replaced its old divisional operating
blueprints with bottom-up, detailed
commitment plans. Proposals developed For years this big company had prospered by
by the divisions in the commitment- hiring large numbers of young liberal arts
planning process go to all major graduates and giving them extensive
functional vice presidents for review. The training. As product technology advanced,
human resources staff retains its however, salespeople lacking a technical
concurrence option and prepares
strategy reviews to identify background were less and less able to grasp
/
disadvantages. If it finds issues that it. By 1983 management faced an important
cannot be resolved informally, personnel decision: In the years ahead should the
sends the plan to the top-level business company alter its strategy and recruit more
operations committee for resolution. heavily among technical college graduates?
If so, how fast should the company move,
To give promising executives wide and how should the transition be managed?
exposure to the company, Webb rotates
them through varied assignments that
can include staff positions designed to Representatives from marketing, field sales,
give them a look at top-level product development, and personnel formed
management. Its commitment to getting, a task force to devise a program for
keeping, and developing the very best identifying future sales-force candidates.
people is evident in a recent decision to The assignment proved extraordinarily
authorize yearly hiring of the top 5% of
new graduates in certain engineering complicated, and days of discussion
specialties. This philosophy is also followed. A flow chart, prepared to assist the
reflected in the company’s full- task force’s deliberations, demonstrated the
employment no-layoff policy for full-time complexity of careful human resource
permanent employees. This policy, in planning and the virtue of organizing the
turn, is an important feature in other process into a series of manageable steps
decisions, such as the ongoing need to (see Exhibit 6).
find new projects for talented
employees.
Among Webb’s well-executed human
resource activities are management-
succession planning, extensive
management-development efforts, and
training programs in effective
management. The company is also
beginning to apply strategic thinking to

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Exhibit 6 The Planning Process for a Sales Force Change

The task force began by identifying the chief factors that were determining future
salespeople’s capabilities. It then used these factors to establish the company’s needs and
to determine objectives for the sales force. At this point, too, the task force requested an
inventory of the company’s current sales team to see how it balanced against the
identified needs.

Having determined that the company lacked the people it needed, the task force
identified its alternatives. This brainstorming phase was a logical follow-up to the
forecasting, modeling, and data collection that had gone on before, and it represented the
task force’s entry into the decision stage. However, at the same time the alternatives
made further analysis essential. For example, because hiring from the outside was one
alternative, the company had to survey the available job seekers. And because internal
development was another avenue, the task force had to know more about the company’s
willingness to retrain and relocate its employees.

At this point, the task force faced crucial “make-or-buy” decisions. What should it
recommend? The decision to look outside for more technically trained people could be
easily implemented. But, as the task force realized, its options were also constrained by
previous decisions. New hires could strengthen the sales force, but they could not
substitute for it. The company had a large number of salespeople already and could not
seriously think about replacing them in a short time. What, then, could the company do?
/
The task force recommended that the company detail technically trained people to sales
and supplement them with a large-scale retraining program for the existing staff.
Options such as reorganization of the company’s sales efforts, job redesign, and changes
in the compensation system were held for further study. Implementation of the task
force’s recommendations occurred during the next three years.

Model Process
Every company organizes its people-planning process in its own way, and some use only
parts of the model shown in Exhibit 7. Yet this sequential and idealized version of the
people-planning process both accurately reflects current practice at several highly
successful companies and reveals the logical order that ties these activities together.

Exhibit 7 The Human Resource Planning Process

As the model makes clear, the most important development in human resource planning
is not the creation of many elements but rather their integration into a decision-making
process that combines three important activities: 1) identifying and acquiring the right
number of people with the proper skills, 2) motivating them to achieve high
performance, and 3) creating interactive links between business objectives and people-
planning activities.
/
Thinking ahead begins with a company’s multiyear business plan, which establishes both
its overall organization structure and goals and objectives for each business. Then the
planning process divides to reflect the two factors that make any business successful in
human terms.

A company’s skill and staffing forecasts are set by both its organization structure and its
business goals. Then company managers must decide whether to meet forecasted needs
by hiring new people or retraining and reassigning the current staff. Performance
appraisals, skills inventories, management succession plans, and equal opportunity
programs all provide input for this choice. For current personnel, employee training and
executive-development programs come into play, while recruiting projections, advance
hiring, and even stockpiling of key talent are used for new hires.

Business goals also generate the productivity and quality requirements that are translated
into performance objectives for individuals and organizational units. Designing and
strengthening work programs, assessing the corporate culture, and, if necessary,
modifying or reinforcing it from the top are among the ways human resource planners
target performance objectives. They also adjust wages and benefits as necessary to
preserve morale and promote recruiting and retention of employees.

Companies that have the people in place to meet their performance objectives are well-
equipped to implement their business plans successfully. If, however, the right people are
unavailable or if the performance goals cannot be met, the plans themselves may require
revision, as the feedback loops in the model show. Many companies would have spared
themselves embarrassing marketplace failures if they had first recognized that the human
resource implications of their strategic plans were unrealizable. And in fact, astute
managers no longer assume that every plan is doable, nor do they simply derive their
people plans from their long-term business plans.

Personnel and skills forecasts are common in business organizations, and this aspect of
people planning has received much attention in recent years. Newer and quite important
are the human resource activities designed to evoke high performance from individuals
/
and groups within the company. This morale management bodes well for the future,
since it is people’s performance and productivity that help create the lower costs and
higher quality essential for profitability.

The people-planning process described here is taking shape in many companies

throughout the country. In some it has evolved, beginning with one or two components
and the gradual addition of others. In a smaller group of companies it began in reaction
to environmental challenges. But in the largest group by far, people planning has resulted
from the leadership, vision, and purpose of top management.

1. See, for example, Harriet Gorlin and Lawrence Schein, Innovations in Managing Human
Resources (New York: Conference Board, 1984).

2. John F. Welch, Jr., “Managing Change,” dedication convocation, Fuqua School of

Business, Duke University, April 21, 1983.

A version of this article appeared in the July 1985 issue of Harvard Business Review.

D. Quinn Mills is a professor at Harvard Business School in Boston and the author of E-Leadership (Prentice Hall,
2001).

This article is about STRATEGIC PLANNING

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