ascertaining HR supply

1. ASCERTAINING HR
SUPPLY
Chapter 5

2. CHAPTER LEARNING OUTCOMES
• AFTER READING THIS CHAPTER, YOU SHOULD BE ABLE TO:
• Understand the relationship between demand and supply forecasting techniques in the
HR planning process.
• Recognize the importance of effectively managing the supply of human capital.
• Discuss and evaluate the advantages and disadvantages of the following specific
methods of determining external and internal supply
• Recognize when an HR gap may be filled through substitution strategies such as
automation, or when the gap may be attributable mostly to the bullwhip effect.

3. Introduction
• Human capital must be obtained from a source that is either internal to the
organization (current employees) or external (individuals currently not
employed by the organization), or, more commonly, some combination of
these.
• Many organizations give preference to internal supply because :
1. It helps reinforce employee loyalty and performance.
2. Current employees are already socialized to the norms, rules, and
procedures of your organization, and so organizational fit is ensured.
3. The employer possesses detailed knowledge (as listed on its HRMS skill
inventories) of the employees' performance and KSAs over time (e.g., work
history and experience).
4. Internal labour markets provide employees some protection from economic
downturns, as employees can move from one job type to others.

4. SEGMENTING THE INTERNAL SUPPLY OF
HUMAN CAPITAL
• Firms should start looking at the kinds of human
capital skills or competencies that are critical to
solving organizational problems or that are key to
implementing the firm's strategy.
• However, employees working in the same job, who
hold similar sets of skills, may have very different
objectives when it comes to how the current job fits
into their own career objectives.

5. SEGMENTING THE INTERNAL SUPPLY OF
HUMAN CAPITAL
• When different groups of employees work in the same job but have different
work or career preferences, it may be possible to retain or develop more
than one of these employee segments with HR programs.
• Firms should understand each of the employee segments and provide HR
practices that appeal to each of these segments in unique ways.
• That way firms can influence the supply of human capital from each of
these segments in ways that ensure a strong supply of human capital.

6. HR SUPPLY PROGRAMS
• THE ROLE OF EMPLOYERS IN INFLUENCING SUPPLY
• If employers cannot find a sufficient supply of labour for certain jobs, they can
either change the nature of the job to be more attractive, train workers
themselves, or look at other labour pools.

7. HR SUPPLY PROGRAMS
• HR RETENTION PROGRAMS
• There is a need for organizations to monitor and control levels of absenteeism
and employee turnover.
• Apart from normal levels of retirement and voluntary turnover, high levels of
involuntary turnover normally signify a mismatch between the individual
and the organization.

8. HR SUPPLY PROGRAMS
• HR RETENTION PROGRAMS
• The costs of replacing current workers and acquiring new ones can be large.
"hard" costs:
a. advertisements, headhunter and recruiting fees,
b. interview training and travel costs,
c. administration expenses,
d. cost of lost production,
e. bonuses or increased salaries to act as inducements to join,
"soft" elements:
a. such as lost business and customer contacts,
b. decreased quantity or quality of work due to training and "learning curve" gaps,
c. orientation and training time, decline in team morale and productivity,
d. increased turnover due to the "follow me" effect) to consider.

9. HR SUPPLY PROGRAMS
• HR RETENTION PROGRAMS
• Organizations that demonstrate:
1. Attention should be paid to selection procedures to ensure that proper
skills and competencies are possessed by the individual,
2. orientation and training and development in ensuring that employees are
provided with clear guidance with regard to their employment and desired
performance levels.
3. effective communication programs;
4. maintaining an enjoyable work atmosphere;
5. designing meaningful jobs;
6. formulating and administering performance and compensation systems that
identify and differentially reward better performers based on clearly
communicated criteria;
7. and offering more flexible and attractive work arrangements (e.g.,
flextime, telecommuting, cafeteria-style benefit plans).

10. HR SUPPLY PROGRAMS
• HR RETENTlON PROGRAMS
• Mass customization in HR refers to the way in which the major aspects that
influence the employee relationship with the firm can be blended and molded
to suit the individual needs of the employee.
• Not only offering policies such as flexible work arrangements, core working
hours, telecommuting, cafeteria-style benefits, but allowing employees the
individual freedom to select how to receive these policies, and even the
option to select the mix of fixed and incentive pay all contribute to mass
customizing the employment experience.
• Mass customization of HR is intended to help maximize the employee
experience and ultimately enhance retention.

11. METHODS FOR MODELLING THE SUPPLY OF HUMAN
CAPITAL
• SKILLS AND MANAGEMENT INVENTORIES
• The first step in supply analysis is an examination of the number and capabilities of current
employees.
• A skills inventory is an individualized record held on each employee except those currently in
management or professional positions.
1. Personal information (e.g., name, number, job classification and compensation band)
2. Education, training, and skill competencies (e.g., certificates, licenses, and diplomas or
degrees completed, including the area of specialization, dates of attendance, and names of the
institutions)
3. Work history (e.g., date of hire, seniority, current job and supervisor, and previous jobs
held in the organization and the dates associated with them)
4. Performance ratings (i.e., a numerical score of performance history)
5. Career information (e.g., future jobs desired by employee and those recommended by
supervisors)
6. Hobbies and interests (including community and volunteer associations)

12. METHODS FOR MODELLING THE SUPPLY OF HUMAN
CAPITAL
• SKILLS AND MANAGEMENT INVENTORIES
• Management inventories individualized personnel record for managerial positions that contain:
1. A history of management or professional jobs held
2. A record of management or professional training courses and dates of completion
3. Key accountabilities for the current job (i.e., organizational resources, including the
size of the budget controlled, number of subordinates, important organizational
outcomes)
4. Assessment centre and appraisal data
• Only when an organization has a properly maintained HRMS, complete with the
skills and management inventories, is it really able to assess correctly the numbers
and competency levels of its current workforce.
• In this way, HR planners can determine the organization's workforce strengths and
weaknesses and plan training and development courses accordingly, while noting
which job openings must be filled from external sources because current employees
lack the skill competencies required.

13. METHODS FOR MODELLING THE SUPPLY OF HUMAN CAPITAL
• MARKOV MODELS
• A Markov model is a method to model the flow of human capital between
jobs within the organization based on historical movement patterns, to give a
deeper understanding of how employee movement affects the supply of
human capital beyond a simple estimate of turnover rates.
• Employee movement patterns in the organization are:
1. Remaining in the current job
2. Promotion to a higher classified job
3. A lateral transfer to a job with a similar classification level
4. Exit from the job (e.g., termination, layoff, voluntary leaving by the employee)
5. Demotion (which is relatively rare)

14. METHODS FOR MODELLING THE SUPPLY OF HUMAN CAPITAL
• MARKOV MODELS
• There are three main steps to using a Markov model for HR planning purposes:
First, collect historical data on mobility rates between jobs in the
organization.
Many organizations collect data on turnover rate, promotion rate, and rates of
lateral transfers and demotions.
Second, based on these data, develop matrices to forecast future movement
between jobs.
Third, use the forecasts of the model to analyze HR policies and programs,
and instigate the necessary adaptive measures

16. METHODS FOR MODELLING THE SUPPLY OF HUMAN CAPITAL
• MOVEMENT ANALYSIS
• Movement analysis is a technique used to analyze the chain or ripple
(wave) effect that promotions or job losses have on the movements of
other employees in an organization.
Movement analysis enables the HR planner to select the desired mix or
percentage of internal and external supply
ranging from a promote-from-within policy to the other extreme of
replacing losses entirely through external hiring.

17. METHODS FOR MODELLING THE SUPPLY OF HUMAN CAPITAL
• MOVEMENT ANALYSIS
• The normal planning time horizon is one year
1. Starts with identifying the number of employees in each authority level at
the start of the forecasting period.
2. Consider changes in the level of staffing for the department,
whether we are going to increase the number of jobs in some or all authority
levels or downsize to reduce the total number of employees in the department.
1. Calculating the losses requiring replacement for each authority level of the
department because of promotions, transfers out of the department, voluntary
turnover, termination) that need to be replaced;
2. We add changes in staffing level to employee losses requiring replacement to
give us the total number of positions requiring replacement.

18. METHODS FOR MODELLING THE SUPPLY OF
HUMAN CAPITAL
• MOVEMENT ANALYSIS
• Tables 6.2 and 6.3 demonstrate the assumptions and outcome of a movement
analysis exercise.
• Table 6.2 shows the expected movement of employees at each job level in a
work unit.
• Taking these total changes at each level to Table 6.3, we see that the changes
made at each level are cumulative, so that 167 changes are required to
accommodate the call for 68 positions to be filled.
• By estimating the number of internal promotions and external hires,
movement analysis can help planners to ensure that the firm is able to
devote enough resources in the training and development of its current
employees (i.e., the (167-68) = 99 employees who would have taken up
positions at higher levels) and in the recruitment of the 68 new hires.

21. SUBSTITUTION AND OTHER GAP STRATEGIES
• After forecasting the demand for and the supply of human capital, the
difference between these two figures represents a surplus if the supply
exceeds demand, or a gap if the demand exceeds supply.
• In the event of a gap, firms must hire externally in the short term, but have a
few more options over the long term.
• Some strategies include outsourcing the extra requirement, focusing on
retention strategies to reduce voluntary terminations, increasing training and
development efforts to further develop the internal labour pool, and
substituting human efforts with automation

22. SUBSTITUTION AND OTHER GAP STRATEGIES
• MANAGING THE BULLWHIP EFFECT
• The bullwhip effect occurs when errors in estimates of supply become
amplified as those errors are compounded along the supply chain.
• For example, if the manager at a clothing retailer is uncertain as to the exact
supply of part-time salespeople in the store, he or she might decide to
estimate the supply a little on the low side just to ensure there is not a
shortfall of employees available to work part-time.

23. SUBSTITUTION AND OTHER GAP
STRATEGIES
• MANAGING THE BULLWHIP EFFECT
• When considering the demand for part-time salespeople, planners will reduce
risk by estimating demand a little on the high side, to make sure that there is
not a shortage of part-time salespeople.
• Now this error has been compounded, so when a gap analysis is examined
between the estimated demand for and supply of part-time salespeople, the
gap will be much larger than anticipated by either the demand or supply
estimate.
• This exaggerated gap gets passed to recruitment, who in order to reduce risk
will recruit for slightly more than the estimated amount to make sure there is
not a shortage of part-time sales people.
• This can waste recruitment resources, employee time, and the firm's money.