When crafting effective talent strategies for the enterprise, HR leaders have to filter through a noisy business environment to identify what matters most. This research discusses four possible talent-related scenarios the organization faces and how HR leaders can prepare for them.
This article is part of a three-part series on helping HR leaders take the lead amid economic uncertainty. The other parts discuss how and
Organizations today are under pressure to deliver results while operating under challenging conditions. Although inflation has slowed in the United States and other countries, organizations still face an economic environment marked by high interest rates and high levels of uncertainty. Similarly, although labor markets may be weakening, HR leaders are still concerned about increased competition for talent. As of February 2023, 56% of HR leaders we surveyed expected competition for talent to increase over the next six months, compared with 50% in January 2023 and 35% in December 2022.
The OECD’s Business Confidence Index (BCI), which is used to help anticipate turning points in economic activity from an industry perspective, has been steadily trending downward for most countries over the past year. The most recent BCI for the United States, for instance, is 98.94, indicating “pessimism toward future performance” (see Figure 1).
Given numerous and often ambiguous economic signals, HR leaders have to filter through this noise to identify what factors matter most in crafting their talent strategies. Today, organizations increasingly operate in different regions that may face wildly different economic, political and legislative environments. Adapting to these shifting conditions makes it a challenge for organizations to determine what information to use in crafting their strategies, as they may be facing multiple scenarios simultaneously.
HR leaders may face a seemingly unlimited number of scenarios, but these challenges can be simplified into four general scenarios based on two key factors: organizational performance outlook and critical talent availability. By focusing on where their organization falls in these two parameters and how that position changes over time, HR leaders can more agilely develop a targeted plan of action to deploy as needed.
To be best-equipped to navigate today’s complex world, HR leaders should:
Identify and prepare for possible scenarios — Understand which of four possible, talent-related scenarios their organization faces by assessing their near-term economic outlook and critical talent availability.
Strategize for four scenarios — Situate their talent strategy in each of these four possible scenarios for greater resiliency.
Continually assess their scenario(s) and plan accordingly — Monitor key data and metrics related to performance outlook and critical talent availability, communicate regularly with business leadership to ensure they align on objectives and identify stakeholders and their roles in the event of a shock.
The two main parameters HR leaders should consider when planning their talent strategies are:
Performance outlook — A company’s outlook regarding its economic and/or fundamental business condition as defined by indicators such as financial performance, position or cash flows
Critical talent availability — A company’s ease of access to critical talent capabilities (e.g., skills, knowledge, experience) defined by indicators such as available candidates and cost to acquire
In determining where their organizations fall on these two spectra, HR leaders should be in continuous dialogue with business leadership. In particular, they should speak with finance leadership for information on their revenue and growth projections as well as recruiting leadership on talent availability trends.
Based on these parameters, HR leaders should consider four possible scenarios — and ways to respond (see Figure 2):
Positive performance outlook + scarce critical talent
Positive performance outlook + abundant critical talent
Negative performance outlook + scarce critical talent
Negative performance outlook + abundant critical talent
By crafting strategies based on these four scenarios, HR leaders can prepare their organization for the future, protect their workforces and situate themselves as strategic business leaders, rather than simply functional leaders.
If an organization’s performance outlook is positive amid scarce critical talent, it should focus on future-proofing — that is, enhancing the organization’s resiliency against potential future shocks (see Table 1). Although the organization is currently on a strong footing, that could quickly change in the event of an economic shock. Should the organization need to hire more talent due to normal, or higher, levels of attrition, it will struggle to do so. Future-proofing could include a renewed emphasis on talent retention for employees with critical skills, strengthening the organization’s employment value proposition (EVP) and investing in internal skills development.
If an organization’s performance outlook is strong — and there is an abundance of critical talent — it should focus on trailblazing, taking more risks and being more aggressive in its strategies (see Table 2). As profit projections are likely trending upward, organizations will have fewer cost constraints and can expand their operations. Selectively investing in talent can allow organizations to build on their existing strength and grow at differential rates relative to their competitors.
At the same time, HR leaders should be careful to still monitor for signs of overhiring, where talent investments severely outpace potential growth, to guard against the need for reductions in force if an unanticipated economic shock occurs.
If an organization’s performance outlook is negative, while critical talent is abundant, the organization will need to refocus to meet business objectives (see Table 3). For HR leaders, this challenge means ensuring employees have the skills needed to fill a diverse range of roles and create a culture that drives retention and efficiency rates. Although the organization can hire critical talent if it needs to, the resources to do so may be limited. It is more economical for organizations in this situation to focus on retention and retraining versus aggressive recruiting.
If an organization’s performance outlook is negative, and critical talent is scarce, the organization should consider retrenching through limiting new hires, restricting backfilling positions opened up through employee attrition and potentially reducing the size of the workforce (see Table 4). Retrenching, particularly through reductions in force, should not be taken lightly. As demonstrated during the COVID-19 pandemic, thousands of organizations laid off workers, only to struggle later to rehire and train new employees.
Additionally, as HR practices have focused increasingly on human-centric policies, employees could view the organization’s decision to downsize as hypocritical, damaging the organization’s reputation and its future potential to hire employees.
Whichever scenario unfolds, HR leaders must understand their own context to strategize flexibly, quickly and, to the extent possible, proactively. This means understanding their organization, especially the business’s goals and trajectory, along with their industry and the broader economic landscape.
Monitor key data and metrics: These include business and industry performance, employee sentiment and labor market competitiveness. These metrics can change rapidly, so HR leaders must check them regularly. By leveraging the latest data, HR leaders can make more informed decisions and have a more solid backing for their strategies. (For more, see .)
Be aligned with business leadership and objectives:All of these scenarios involve ambiguity and complexity, and no major decision should be made rashly. HR leaders must ensure their objectives are aligned with those of the business, in addition to verifying they align with the current corporate culture and talent needs. HR leaders must also ensure HR’s strategies are integrated with the broader company response to whatever scenario(s) unfolds and that stakeholders are kept in the loop on these developments. (For more, see .)
Similarly, in developing their scenario-based strategies, HR leaders should consider their RACI planning to ensure a smooth response. (As an example of how to visualize this, see .)
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Business Confidence Index (BCI), Organisation for Economic Co-operation and Development. “Numbers above 100 suggest an increased confidence in near future business performance, and numbers below 100 indicate pessimism toward future performance.”