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How can Australian boards mitigate workforce risk?

  • For most organisations, its workforce is its largest cost and arguably its biggest asset.
  • Companies that do not plan for the right workforce are more vulnerable to obsolescence.
  • Strategic workforce planning provides the clarity for boards to proactively predict and plan for the unique dynamics of their organisations.

Boards have been forced to dilute their time on company strategy in order to juggle an increasing compliance workload. Further, a ‘constant change syndrome’ now faces boards with globalisation, digitisation, regulation and demographic change increasing the rapidity of disruption.

However, the board must continue to drive management to think strategically in order to survive. With the workforce being not only the largest cost for most organisations, and arguably the biggest asset, the need for boards to intricately understand and proactively plan for the future is critical. Accounting for and optimising the workforce, a large proportion of most organisations’ resources, is an imperative on which boards must require proactivity from the Leadership team.

Where are boards failing to address risk?

The workforce is too often assumed as a secondary factor to the overall business strategy. Leaders, including directors, assume the business can conjure workers when needed. The board plays a critical role in navigating both the changing environment their companies operate in and also the emerging ‘future of work’ that is happening now. In this tumultuous period, companies are experiencing change in who is working, how they are working and where they are working.

Building an understanding of these factors is crucial in achieving coherence through the organisation and more importantly, ensuring the company can deliver their business objectives. When we consider areas of risk under the board’s oversight, we often think of financial loss, ethics and corporate responsibility. However, to achieve objectives, the right people must in place to execute the strategy.

Boards who fail to optimise their workforce risk destruction of shareholder value. At its worst operational execution fails, such as customers being underserved, resulting in foregone revenue. Other problems include the wrong size and shape of workforce, high overtime for understaffing and premiums for the incorrect mix of contingent workforce such as casuals and permanents.

Not having the right workforce in place, whether there aren’t enough required skills or just the wrong mix of capabilities, creates a risk for the board in being unable to deliver their strategic and operational imperatives.

Companies that do not plan for the right workforce are more vulnerable to obsolescence, unable to change and adapt at a fast-enough pace. Managements failure to identify the threat to their current business model through robust scenario planning, and accordingly plan for a future workforce and the skill sets required can have catastrophic consequences. This was seen in the fall of many companies, for example Kodak, who failed to adapt to a new marketplace and changing consumer attitudes. It was this nearsighted approach that hindered the company from navigating an evolving context. In fact, 88 per cent of Fortune 500 companies that existed in 1955 no longer exist today.

There is a widespread, incorrect assumption that the requisite workforce will materialise within business strategies as needed, and that the right skills will just organically develop and appear right as the company needs. This reactive approach usually ends up being the greatest cost for the company.

It is time boards apply the same level of attention to their largest asset, as they do to other parts of the business. The workforce needs to be treated as a key strategic business driver.

Translating business strategy

For many companies, core functions are using data to make decisions and plans, yet a scientific approach to the workforce is not common at all. Effective workforce planning is a crucial risk mitigation strategy for the entire c-suite and board in assuring they have the workforce needed to execute strategy.

It is time boards apply the same level of attention to their largest asset, as they do to other parts of the business. The workforce needs to be treated as a key strategic business driver.

Strategic workforce planning (SWP) is an extremely valuable tool for the board when assessing company readiness and ability to meet shifting demand. SWP is the one of the most misused and least understood business phrases. Ask five different people what SWP is to them, and you will end up with seven different answers. Responses may range from rostering, project management, and recruitment pipelining to financial headcount forecasting.

While SWP does provide input into each of those elements, it is so much more.

The purpose of SWP is to create an inherent alignment of the workforce to company plans. It does this by translating business and organisational strategy into the activity drivers that create a demand for a workforce, and ultimately determining what the business is trying to achieve and making sure it has the workforce it needs to do it.

This shows the board what workforce size, shape and mix is required for it to be able to execute its strategic and operational imperatives.

Whether the company is facing BAU volume changes, digitisation, transformation, or consolidation, SWP is key in providing the clarity for boards to proactively predict and plan for the unique dynamics of their organisations.

Through undertaking SWP and translating business strategy into workforce demand, the board is then able to assess their current workforce supply. This provides substantial insight into mismatches and what factors are going to provide the biggest execution risk now and into the future.

Improved decision making: Moving from reactive to proactive

The value of being able to quantitatively understand workforce needs cannot be underestimated.

If you were to ask board members if they knew what workforce their organisation needs today, let alone in three to five years’ time, it is likely the answer would be no. The majority of companies are flying blind, rolling out business initiatives that they don’t even know they can execute.

A senior executive of a large ASX listed company once said to me, ‘What’s the point of creating models, things are going to change anyway and then it will be wrong.’ As one of the great statistical minds of the 20th century, George Box, said ‘all models are wrong, some are useful’. As things invariably change, planning for the future creates a baseline to understand and navigate through those changes.

Being able to identify the value of different initiatives in the context of critical business drivers gives boards the insight to prioritise and plan. By integrating financial principles, SWP ensures every decision is commercially grounded. This creates optimised workforce initiatives that enables organisations to maximise their success.

SWP enables organisations to nuance the dynamics of their workforce supply and demand to proactively determine the best initiatives across not only the traditional build, buy, borrow suite, but also which segments they need to focus on for retention, what they should eliminate in a coherent context and which productivity and efficiency initiatives will have the most impact and where.

SWP also gives the board insight into the company key risk exposures through incorporating the unique business context, where the market is going, capability gaps, external industry risk and internal workforce dynamics to show where they are most exposed.

Uncovering misalignment and breaking down silos

A common theme uncovered by SWP, is the misalignment across the leadership team on what a business strategy actually means in execution.

Dynamic scenario modelling of SWP is a powerful tool in bringing executives around the table and driving invaluable conversation.

Take the case of Royal Dutch Shell Group of companies. Their system of scenario planning is acknowledged to be one of the best strategic planning systems used today and has been credited for turning around its business performance. At Shell, planning for the future is done through scenarios, which not only enables superior decision making, but also facilitates alignment between management teams who are all perceiving things through their own lens.

Often the dialogue from SWP uncovers misalignment in business direction between a CEO, COO and CFO before then bringing them back together, with clarity on the achievability of the strategy.

As described in Synchronicity by Joseph Jaworski, ‘a managers’ inner model never mirrors reality . . . it is always a construct. The scenario process displayed through modelling is aimed at these perceptions inside the mind of a decision maker. By presenting other ways of seeing the world, decision scenarios give managers something very precious: the ability to re-perceive reality, leading to strategic insights beyond the minds reach’.

This dynamic really aligns the workforce with the business and with finance. It provides a quantitative basis for intricately understanding the workforce, facilitates great discussions and most importantly creates a call to cohesive action.

Improved social responsibility

The increasing drive for social responsibility requires the board to consider the impact that risks pose to their workforce. Downsizing workforces can be seen as a breach of community expectations and can negatively impact public perceptions.

With SWP, the board can better support social responsibility with an insight into their future workforce needs. This proactive understanding means no knee-jerk, cost-driven redundancies, as employers can better support their workforce through transitioning periods, re-skilling and equipping them for the future.

Boards facing margin pressures can identify their workforce requirements and critical skill segments through SWP and avoid poorly planned blanket redundancy programs that can often remove the skills they need for growth in the future or that are core to the organisations competitive advantage.

A roadmap for the future

As arguably the largest cost for the company, workforce risks can be detrimental. However, with SWP, boards are given a roadmap for the future. In this approach, boards have an informed view of business strategy versus the workforce, integrating all elements in a dynamic and predictive construct to centre the conversation on strategy, planning and action. It is with these insights, boards are best equipped to deliver imperatives and mitigate risk in the constantly changing contexts their company operate within.

Understanding external trends and the emergence of technology as a driver for both organisational strategy and workforce change is critical. Organisations often get caught in the hype around the future of work and the 4th industrial revolution, without contextualising it within their own critical strategic and operating imperatives.

SWP, when done correctly, starts with an organisations business strategy and translates it into workforce implications to understand where your organisation is heading versus where it needs to go.

SWP then integrates the latest in global trends and research with organisational trajectories to predict both the emergence of technology as a driver of change and opportunity, and how the shape and size of the workforce needs to shift for the future.

Integrating these insights through SWP enables a clear link of the business objectives to the digital forces so that they can get the real picture and then confidently manage the impact of technology on the workforce.

Mitigating risk is almost always at the top of the list of worries for Australian boards. But how many have seen Management’s workforce plan needed to execute the company strategy? SWP is seldom on the agenda. With technological changes already changing the way we work, which will only keep changing exponentially, it is essential for boards to plan for the future of their workforce now.

Alicia Roach can be contacted on (02) 8072 9474 or by email at

Material published in Governance Directions is copyright and may not be reproduced without permission. The views expressed therein are those of the author and not of Governance Institute of Australia. All views and opinions are provided as general commentary only and should not be relied upon in place of specific accounting, legal or other professional advice.

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