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Optimizing the Human Supply Chain

Supply chain thinking inspires workforce optimization.

What do hurricanes and retirees have in common — besides Florida? They both significantly impact a company's staffing strategy. In the short term, disasters and other scenarios can make it hard to find skilled employees in affected areas. In the long term, "brain drain" is a looming crisis, with companies expecting anywhere from one-fourth to one-half of their workforces to retire in the next 10 years.

In its "workforce optimization" initiative, IBM is taking a supply chain management approach to solving these problems, cataloging skill sets as human inventory and applying the same supply chain technology used for the company's hardware to respond quickly to short-term needs and plan for long-term demands. This approach makes sense, says Bruce Richardson, chief research officer at AMR Research. "As happens in a supply chain, you can find you have too much of one 'product' and not enough of another in the labor chain," he says.

When IBM started the project in 2004, the company saw that the first barrier to development of a common "skills-supply" database was a lack of common language to define skills and job roles — a "manager" in one division might be a "leader" in another, for instance. IBM developed a skills taxonomy structured on a hierarchy of 500 job roles and skill sets. In the short term, it planned to use that taxonomy and ETL tools to translate skill data into a common language when loading the new database. In the long term, the taxonomy would drive standardization in job descriptions. All 320,000 IBM employees will be identified by mid-2006 and, once subcontractors and suppliers are added, IBM expects to have one million individuals represented in the database.

Staff were then asked to complete self-assessment skill templates. Unlike inventory, which doesn't change in terms of its physical attributes, human skills do change, so IBM used WebSphere middleware to integrate with a host of human resources, sales, ERP (enterprise resource planning) and vendor management systems and track what projects and activities employees are involved in over time. This tracking feature keeps the skills inventories current. The company then created a workforce management application, called Professional Marketplace, to help managers locate the right talent on demand.

The application was fully deployed in mid-2005, and it has already been put to the test. The day before Hurricane Katrina was predicted to make its first landfall in Florida, a client contacted IBM requesting individuals with specific skills to be deployed in surrounding states, where backup IT facilities could be sourced. Using Professional Marketplace, IBM located suitable employees and deployed them the day after the hurricane.

Quick-response staffing is just one capability; as in supply chain management scenarios, resource optimization is a second benefit. "As we become more of a service-based business, it's important that we assign our own staff to more valuable tasks and use subcontractors for other [more commoditized] work," explains IBM director of workforce optimization Harold Blake.

IBM also plans to use the system to support its long-term workforce strategy, something most companies don't give enough thought, says Richardson of AMR, given the pending retirement crisis. "What skills will we need one year, three years, five years out? If we lack those skills, how do we transfer knowledge or make plans to source those skills through hiring, contracting or outsourcing? Doing an annual budget and deciding what's needed for headcount isn't sufficient," he says.

IBM is now creating a resource capacity planning application, called a "Hot Skills Index," to match existing skills to expected demands. Using the same skills taxonomy, IBM will identify skills demand expected from "firm demand" from signed contracts, "opportunity demand" from pending contracts and "forecast demand" based on revenue targets. "If 5-percent to 10-percent revenue growth is expected in an area, we know how that will translate into [skills] demand based on past experience," Blake says. Expected retirement and normal attrition will also be fed into the supply/demand gap analysis.

Blake says IBM will save in excess of $1 billion in 2005 due to the workforce optimization initiative. For instance, the company saved $100 million in travel costs in 2005 by locating local resources with needed skills. Staff utilization improved 5 to 7 percent and saved another $200 million, says Blake. "People sitting on the bench are being used more effectively and we're displacing contractors."


Process Architecture for Workforce Management
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As in any system that combines automated and manual steps, the manual part — skills assessment — can be the weak link. On the front end, manager approval is required before employees can enter skills into their personal inventories to avoid any exaggeration. After the initial assessment, IBM's compensation strategy encourages staff to keep their profiles updated.

"We measure our consulting staff on billable hours and utilization rates," Blake says. "Consultants realize that the more knowledge they have and the more we know they have it, the more valuable they are to us and our business partners."


Driving Force: Workforce Performance Tuning

When Harold Blake put his 25 years of experience at IBM into the newly created position of director of workforce optimization in 2004, he was asked to apply the same supply-chain technology used for the company's hardware to the company's labor-management strategy. The multiyear project was a complex technological undertaking, but the biggest challenges to creating a new way to manage the company's global labor pool were cultural.

"Making the shift wasn't as easy as I thought it would be," says Blake. "Senior managers within IBM were fairly autonomous. Getting them to think about what's in the best interest of IBM versus what's just in the best interest of their organizations was difficult."

Overcoming this obstacle required top-level support. "We have significant management buy in," Blake says. "I work with four senior vice presidents, who all report to [IBM Chairman and CEO] Sam Palmisano and who monitor and cheerlead this project within their own organizations."

Cultural challenges affected IBM at the individual level as well. "Even though the correlation from a hardware to a resources supply chain was pretty much a one-to-one thing, we didn't want our consultants to feel as if we were treating them like hard drives or keyboards," Blake says. "When we began, we used too many references to the hardware supply chain. We had to learn to use different words so we wouldn't turn them off."

Over time, the workforce project has had a positive effect on corporate culture and staff morale, says Blake. "Many people took their skills for granted and now realize what assets they are," he explains. By making better use of employees' skills and encouraging managers to recommend continued education, IBM is using the tool for staff development — perhaps the biggest difference between the hardware and labor supply chains.

"Parts become excess and surplus," says Blake. "People can change and learn."

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