The Importance Of Forecasting In Hiring
Forecasting is a subject dear to the heart of many CEOs. The ability to accurately forecast enables companies to plan their production, maximize production efficiency, reduce inventory costs, ensure that they have the necessary products to meet customer demands, protect reputation (people hate not being able to buy what they want when they want it), and so on.
Forecasting is equally important in hiring. If you want to be able to recruit strategically you need to know in advance what you will be hiring for in the future.
This enables organizations to move hiring from a reactive, ‘forced purchase’ activity to a strategic, value-added one.
Forecasting people demand is not an exact science (as with any forecasting). Essentially you look at what has happened in the past (numbers of hires, numbers of leavers) and you anticipate what will be needed in the future, based on business strategy and the five-year plan. This can be done at an organization level (typically around competencies or skills) or in a more detailed way within a business unit.
At the business unit level, it should be a detailed plan. First, you need to determine the business driver, for example, over the next three years, we want to increase our sales from x to y.
Then the organization structure you will need to meet that demand, for example, a sales VP, Sales Directors, Sales Managers, outside salespeople, inside salespeople and sales support staff. You then plot this growth over the next three years, look at typical losses (staff who leave voluntarily or who are exited due to performance) and build a hiring plan around this. You need to build into your hiring plan promotions as well.
Clearly this needs to be done job by job but taking the outside sales role only, by way of illustration, say you want to increase your outside salespeople from 32 to 72. You expect to lose 15% a year which means that in year one you will lose 4 people, year two you will lose 7 and year three you will lose 10. Therefore, you need to have a plan to hire 61 people if you are to hit your target of 72 in three years. Then you look at how many people you should be able to promote internally each year, let’s say 10 and this means that you need to hire externally 42. You now have the choice as to whether to hire them into more junior roles early and develop them through or hire more experienced.
Committing to demand forecasting as part of your recruitment strategy has a number of benefits, including:
- It raises the overall status of hiring within your organisation and contributes to the development of a hiring culture and motivates leaders to invest time and effort in developing their personal hiring skills.
- It allows you to hire at the best time, namely when you have a full complement of staff and time to think, thus removing the time pressure and increasing your chances of tracking down top talent.
- It can save you money. We all know that when shopping for something the more we need something, the more urgent our need and the more exhausted we are by tracking it down, the more likely and willing we are to pay too much for it. The same applies when hiring.
- It enables you to think strategically and plan the people that you need both in the short and longer term for your organisation, taking full advantage of the opportunities provided by every hire that you make.
- It means that for a number of roles we can develop our own people for the role in the future thus reducing the need to go to the external market for roles that could be filled internally through training and developing existing talent. Whilst I would not subscribe to filling every position internally as a matter of policy (some external hiring enables new insights and approaches and is healthy) it is suboptimal to have to always hire externally simply because internal training and development has inadequately prepared your people for future roles. Filling roles internally increases staff motivation and retention, saves time and money and maintains continuity.
- It allows organisations to identify ‘feeder roles’. By this I mean, it allows certain roles to be identified as entry positions to the organisation that feed to other positions which are harder to hire for externally (either due to shortage of talent with the required skills and experience or because you need company knowledge to excel at this role). Correctly forecast, you can hire a number of years in advance (2-3 years is very easy, longer takes a bit more skill) for roles using demand forecasting.
To illustrate, let’s use a Research and Development example. The organisation I worked for required a certain number of techno-commercial roles. It took 2 years for an external hire to one of these roles to be fully effective and the business unit struggled to find people of the right experience and calibre.
The R&D function had a certain number of people each year who wanted to move out of research into more commercial roles after 2-3 years in research. By mapping out demand for techno-commercial roles the Research function was able to hire additional graduate researchers each year (a relatively easy hire) and to funnel these after 2-3 years into the techno-commercial roles. This had the additional benefit of making them more attractive in the marketplace because they could offer research scientists broader career options.
I did this fairly formally with a ‘contract’ between R&D and the techno-commercial business unit for the supply of the required number of people over a 5-year forecast. The process was augmented by introducing work experience and training during the 2-3 years in research to better equip people to make the transfer. It worked very well for the managers in both divisions and the people involved.
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