“The only constant in life is change” is arguably the understatement of the decade—and will continue to be all too true in the years to come.
The labor market has gone from one extreme to another—to another. In 2019, the U.S. unemployment rate was the lowest since 1969 at 3.5%, but a year later at the onset of the pandemic, the rate jumped to a whopping 14.7%. Now the U.S. and global economy are recovering faster than the rebound after the Great Recession, but the numbers don’t tell the whole story.
On top of losing jobs, the pandemic forced many workers to leave the workforce. With labor scarce, many businesses large and small have been struggling to recover. They’re coping with the unprecedented challenges by offering hiring incentives: increased base pay for new hires, flexibility for employees to set their own hours, and tuition subsidies. In the meantime, struggling businesses continue to limit their operating hours and stretch the staff they have on hand.
Adapting to change has always been accounted for in workforce management, but what hasn’t been accounted for is adapting to an accelerated pace of change.
And yet, there are companies that have been able to thrive, all the while facing the same challenges of enduring labor shortages and competition for talent. Among the most successful are those that have embraced workforce optimization.
How does that differ from workforce management? Most workforce management systems focus on tracking and counting—they’re basically static systems that struggle to adapt to an accelerated pace of change. Companies that looked to optimize their workforce, rather than just manage it, were able to quickly respond to shifts in the labor market and disruptions to the business. Their operations could rapidly shift their service delivery models, reassign workers to different roles, and manage their operations remotely.
Simply put, workforce optimization is the next evolution of workforce management. Operational leaders who embrace this transformation put their organizations in a position to navigate change and embrace new opportunities.
In this blog, we explore the evolution of workforce management into workforce optimization and its impact on how operational leaders execute their organization’s business strategy.
At a basic level, workforce management is about processes that maximize workforce performance and productivity. Workforce management tools tend to focus on employee scheduling, time tracking, and attendance management. Workforce management software sometimes includes tools that forecast the amount of staff resources needed to meet new demands on a business, such as a new project or seasonal traffic.
The role of workforce management is evolving alongside the shift in the fundamental nature of work.
Here’s another way to think about it: Workforce management focuses on outcomes that include efficiency and productivity.
But what happens in the event of unprecedented demands on the business?
That’s where workforce optimization enters the picture.
Workforce optimization is a strategy that focuses on agility, insights, and experience. Put another way, it’s the lever in how companies drive continuity and profitability through any type of change.
Executing a workforce optimization strategy combines the efficiency of automated workforce management with the flexibility of an agile, skills-based talent approach. Workforce optimization software is the integration of workforce management applications with HR and operations solutions—such as talent management, recruiting, benefits, compensation, skills management, employee experience, and planning and analytics.
Workforce management fits the needs of the business if the only requirements are to manage people and processes. However, since operational leaders are being tasked to do more, they’ll need a solution that enables them to function as business leaders who can align workforce operations with the company strategy. That’s why standard workforce management tools are no longer a fit in the new world of constant change. Instead, workforce optimization is how operational leaders help their companies to not just respond but actually thrive in rapidly changing environments.
A shift in the fundamental nature of work and the acceleration of new technology continue to change how work gets done. As a result, the shift has transformed the value of workers in an organization. They’re no longer seen as an expense necessary to running the business. Instead, workers are seen as the company’s most valuable resource, the competitive advantage in how the work gets done. They’re contributing their knowledge and skills to the organization. They’re coming up with innovative ideas that impact the bottom line. They’re on the front lines providing positive customer experiences.
The role of workforce management is evolving alongside the shift in the fundamental nature of work, both headed toward taking a holistic approach to operational processes and employee productivity. That means the results or the output of employees, which tends to be an operational focus, is highly dependent on HR strategies for employee engagement, employee retention, and even the talent pipeline.
Obviously, static, siloed HR and workforce management systems can’t keep up with the continuous change. Managing a company’s most valuable resource requires operations and human resources to partner together. Their collective ability to address workforce challenges and opportunities is how the evolving role of workforce management supports the new world of work.
Here are seven areas where HR and operation leaders must collaborate to meet the demands of workforce management in a disruptive labor market:
Make every worker count and every worker feel counted. Employee engagement, which has historically been an HR responsibility, and employee productivity, which historically has been an operations metric, are both critical in demonstrating how employees contribute to the organization’s strategy and the company bottom line. The labor shortage and competition for workers have been fueled by the disconnect of these goals. Workers who aren’t feeling valued are leaving for other companies and even changing industries. Organizations need to optimize the productivity of every single worker and also make every worker feel like they matter. HR and operational leaders must share that two-part priority.
Create a foundation of shared data. Operations and HR need to be able to make decisions in real time and in changing business conditions, but that becomes nearly impossible when data isn’t accessible. All too often, the data needed to make critical operations decisions is spread across disparate systems that operational leaders and managers don’t have access to. Managers especially need to access data aligned to their flow of work because they’re optimizing their workforce as conditions change, even as frequently as day to day.
Emphasize operational agility. The changing business landscape affects not just how work gets done, but also how to respond to change. Both HR and operational leaders need agile technology so they can continuously recalibrate how they drive efficiency and productivity, whether that’s redeploying workers to different locations or roles, quickly adjusting schedules to respond to changing labor demand, or teeing up teams to support new business models.
Develop future-ready skills. Workforce management is more than predicting staffing needs. Operational leaders also need to assess if the skills of their workforce can meet the organization’s strategy, and if not, make plans to mitigate the skills gaps through upskilling in partnership with HR leaders. Skills-based hiring is helping to deepen the talent pool, improve retention, and build a culture of continuous learning. Both HR and operational leaders must work together to understand the skills that need to be redeployed to other parts of the business and the skills needed for the future.
Empower workers with a worker-first culture. The pandemic put the health and safety of employees top of mind. Companies shifted their employees to remote work or created alternate working arrangements to empower them to do their job in the face of change. That flexibility and increased self-sufficiency needs to continue in the new world of work, even in industries heavily dependent on hourly workers (such as hospitality, retail, or manufacturing) to meet business demand. Empowering workers with control over their scheduling—such as selecting their own hours, location, or roles—is critical in meeting the needs of employees and the demands of the business.
Leverage automation and artificial intelligence (AI). What was once thought of as leading-edge has now become mainstream to building operational agility and resiliency. Adoption of automation, machine learning, and AI boomed during the pandemic when companies adhered to social-distancing directives—meaning fewer workers on-site—yet needed to keep up with the surge in business demand. Moving forward, HR and operational leaders will need to continue to leverage these technologies in ways that will empower their workforce in the face of change.
Identify operational-impact metrics. The change in how work gets done is transforming how workforce management gets measured. Consider when the COVID-19 guidelines forced restaurants to close indoor dining and business shifted to curbside or drive-thru service. The new business model required operational leaders to quickly identify new performance indicators that could accurately assess productivity, forecast required staffing, and more. And so, operational managers and leaders need access to real-time productivity-related data, such as sales per hour and schedule optimization scores (measuring the quality of schedule in meeting labor demands and worker needs), and also metrics that measure the well-being of their teams. Combined with traditional HR metrics like employee retention, absenteeism, and even overtime—all potential indicators of employee burnout, and consequently, lost revenue—real-time productivity data can help leaders keep and grow their workforce.
Operations and HR will need to partner more strongly than before to overcome the static workforce management made for a world that no longer exists.
Even though the need to optimize the workforce has largely been spurred by the pandemic, efficiency and agility are necessary no matter what comes next, whether the event is a global disruption or a new market opportunity.
But what was the difference between companies that navigated change and those that struggled? The difference lies in the details, or rather, visibility into the details. And those details are what help companies optimize their workforce:
Accuracy. Workforce optimization focuses on using real-time workforce data to enable operational leaders to make proactive decisions. According to the McKinsey report “Future of Retail Operations: Winning in a Digital Era,” taking a data-driven approach to labor scheduling and budgeting captures between 4% and 12% in cost savings.
Flexibility. Workforce optimization solutions leverage configurable business processes powered by flexible technology to support continuous change and agility. “Organizations that are able to optimize their scheduling processes reduce total payroll spend by more than 5% on average,” according to Nucleus Research.
Transparency. Insight into payroll, talent, finance, and workforce management data accelerates decision making. Consider this: According to McKinsey, “retailers that don’t proactively adapt to changing conditions could see their margins fall 200 to 400 basis points because of increased labor and fulfillment costs.”
Experience. Workforce optimization also takes into account creating engaging employer and manager experiences to improve productivity and retention, especially since retail and restaurant workers are quitting at record-high rates.
Optimizing a workforce is a journey, not a set-it-forget-it item on a to-do list, and looks different at every company.
Regardless of the particular needs of the business, all workforce optimization efforts start with administrative excellence. That means processes need to be automated and draw from a single source of HR data. With a digitized administrative foundation, operational leaders gain transparency into workforce metrics and costs, and can more easily adjust processes and workflows.
Teams deliver outperforming results when they’re optimized for doing exactly that—outperforming through agility and insight.
For example, during the pandemic, workforce management went beyond staff scheduling. At the onset of the pandemic, when its front-line workforce had to pivot in how they served credit union members, Washington State Employees Credit Union (WSECU) created a time-entry code that designated additional hourly pay for employees working on-site at credit union branches. WSECU also created time-off benefits designated for COVID-19 testing or quarantine. All new benefits and procedures were created quickly in Workday and ready in an afternoon.
Once organizations have that administrative foundation in place, optimizing a workforce requires processes that can flex and adjust in the face of change. Operational agility helps organizations gain deeper insights, such as an understanding of the workers’ skills, a deeper grasp of labor costs, and the ability to automate more processes and decision making.
That’s what happened to Land O’Lakes, an agricultural cooperative based in Minnesota. Like many companies at the onset of the pandemic, Land O’Lakes had no idea about the scale of disruption the crisis would cause. But because the cooperative had already begun to rethink its workforce optimization strategy, it was able to respond and adapt to the pandemic with speed and agility. As a result, Land O’Lakes was able to adjust aspects of its business model, gain insight into the workplace preferences of its employees, and manage COVID-19 tracking.
From there, companies are fully equipped to achieve workforce optimization. Powered by administrative excellence and operational agility in their systems, companies forge a new path in driving workforce value:
Attrition, hiring, and onboarding have been treated as a cost of doing a business. But workforce optimization demonstrates how attracting, retaining, and upskilling maximizes investment in employees.
Instead of being a commodity and cost center to the business, workers become engaged, skilled contributors who impact business outcomes like profitability, revenue, and productivity.
Companies gain a clear understanding of a worker's capacity, contribution, and growth potential beyond a job profile. And those insights help in creating a flexible, fluid workforce that meets the current and future needs of the business.
Companies that were able to adapt and thrive amid the drastic change were already embracing the tools and the journey of workforce optimization. Teams deliver outperforming results when they’re optimized for doing exactly that—outperforming through agility and insight.