Unfilled vacancies or underqualified applicants – tackling labor shortages is becoming an increasingly pertinent challenge for companies across industries and regions. According to a WifOR study carried out for PwC, the German labor market lacks around 3.4 million skilled workers. Similar labor market imbalances can be found throughout Europe. Ensuring long-term workforce requirements are met is a foremost challenge for companies in today’s labor market, both within Germany’s borders and beyond.
However, this does not represent an unsurmountable hurdle. Strategic workforce planning enables companies to benchmark their workforce against industry and regional averages, examine the internal employee structure in comparison to with the external labor market data, and make strategic decisions based on this data.
The challenge – and solution
The labor shortage situation is going to become more severe as more workers continue to leave the labor market than join it, with the potential to seriously threaten the core functioning of companies. Through strategic workforce planning, companies can counteract these circumstances.
But this challenge necessitates not only a mapping of the status quo, but also of future developments in the labor market. Through a valid benchmarking combining internal workforce data alongside external labor market data, companies can build the foundation for navigating skilled labor shortages. The aim is to enable companies to develop HR strategies based on the external opportunities and risks on the labor market in order to enhance strengths and counter weaknesses.
From macroeconomic observations to concrete measures
Demographic shifts, digitalization, socio-ecological transition – the labor market is undergoing a period of flux. Demographic shifts are seeing more workers leaving the labor market than joining it while digitalization and the decarbonization of industries are fundamentally altering skill requirements for many professions. For example, almost half as many high school graduates in Germany are opting to undertake vocational courses in comparison to 30 years ago with many more choosing to study academic subjects (Demografieportal, 2022). At the same time, current priorities for many workers are different from those of yesterday’s workers. An example is the increasing significance of maintaining a work-life balance. These megatrends depict what is referred to as the Labor Market 5.0, in which a power shift has occurred between employers and (potential) employees with the focus now resting on people.
Why is strategic workforce planning a valuable tool for securing the demand for skilled workers?
Trends such as demographic shifts and digitalization drive changes on the labor market at a macro level. However, they do not provide guidance for a company on which specific measures should be taken. In order to devise a tailored, strategic workforce plan, a range of variable factors, relating to industry and regional-specific dimensions as well as professional skillsets, must be analyzed in comprehensive detail.
Definition: Strategic Workforce Planning
WifOR defines strategic workforce planning as the HR management necessary to align a company’s internal workforce with the external labor market. The purpose of doing so is to make the company’s vision and future targets attainable. HR benchmarking incorporates two primary dimensions: an internal analysis and an external analysis.
Internal Analysis
Understanding the internal status quo requires a company to assess its current workforce, labor needs, recruitment process and development of personnel (through further education or training, for example). To evaluate the internal workforce, factors such as the average age of workers, the prevailing gender gaps, and the representation of employees with migratory backgrounds as well as the forms of employment (marginal, part-time, full-time) should be measured.
External Analysis
In conjunction with internal data, assessments of the external situation on the labor market, as well as foreseen trends, significant to the company’s industry, region, and professional requirements are needed to benchmark a company’s performance and identify potential areas of improvement. For example, a company’s workforce might be made up of 51% women employees, lying above the industry average of 46%. However, if over three quarters of employed women occupy positions of marginal employment (reduced hours), there is a significant potential to fill vacancies through internal personnel.
Internal Indications | External indicators |
Age Structure | Demographic Change |
Gender Diversity | Digitalization |
Representation of Employees with Migratory Backgrounds | Economic Cycles |
Staff Turnover | Cultural Change |
Length of Employment | Migration |
Salaries & Wages | Applicant Requirements |
Education Level | Supply & Demand of Occupations |
Employee Requirements |
Using this internal and external information means interpreting the impact of labor market developments for a company. This analysis forms the basis of HR strategies that can secure demands for skilled workers over the long term.
This requires the following measures:
- Classifying the internal personnel data by relating it to industry benchmarks. For example, in the context of average age structure, representation of different genders, representation of employees with migration backgrounds staff turnover, staff retention, salaries and level of education.
- Matching labor demand with supply by assessing the sectoral, regional, and occupational situations. Is there a sufficient labor supply in my region over the coming years to suit my needs? Are there other regions or occupational profiles which can supplement my labor requirements?
- Understanding the priorities of (potential) applicants. What does my company currently offer? Where does my company have capacity to become more attractive to (potential) applicants beside aspects such as salary?
- Strategically smart decision-making based on developed scenarios. For example, proactively recruiting workers can save costs if the skilled labor situation is to becomes even more precarious in the following years as the hiring process will drag on, costs will increase, and work will be left undone. This is influenced by factors such as turnover, new hires, internal training and bottlenecks.
In a nutshell
Strategically addressing HR planning involves assessing broader developments on the labor market and applying this scenario to the internal situation. This process enables the implementation of HR strategies which reflect strengths and weaknesses of a company’s workforce whilst responding to opportunities and risks on the labor market.
Guidance for strategic workforce planning would address questions such as the following:
- What will my workforce look like in 2030 and will it be sufficient to implement the business processes?
- How can alterations to the demographic structure (age, gender, migration) of my company provide support?
- When is the optimal period for my company to recruit personnel?
- Does my company’s region face particularly acute shortages? Where can I recruit employees from?
- Which professions relevant to my company are threatened by shortages of skilled labor?
- How will digitalization impact my company’s labor supply?
- What impact will academization and decreasing vocational applicants have on the pool of workers available to my company?