Our past blogs in this Preparing to Thrive series have looked at “agility and resilience” and the “people supply chain.” Both topics are critical for organizations to thrive in the current environment. Now, it’s time to discuss the strategic issues organizations will face in 2023 — and how to prepare.
Time is of the essence. Many organizations do not create an annual integrated workforce strategy and plan that tie labor decisions to their strategic planning process. Now is the time to design (and budget for) the structure of existing labor forces and future talent needs, including looking at the transformations in workforce strategy that will help you navigate the year ahead.
Ensuring that workforce decision-making is an integral part of your holistic strategic organizational plan is key to preparing for 2023 and its potential chaos.
If you thought strategic workforce planning was difficult this year, hold on to your hats in 2023. Organizations will face this year’s labor issues in addition to global economic challenges and external factors so grave they cannot be ignored.
While it’s tempting to focus inwardly on a plan that meets carefully thought-out business objectives, 2023 requires disciplined analysis of new inputs that will shape the marketplace and, in turn, impact workforce decisions. Our consultants are carefully weighing the effects of the following global issues:
1. Labor volatility and price of labor supply. We will continue to see a scarcity of skills in key areas. Corporations and employees will continue to clash on what they want hybrid or remote work environments to look like. Employees will continue to be more selective in which jobs they take, and they will be more willing to go unemployed than enter into less-than-desirable work conditions.
We will also continue to see high labor costs in 2023. Prices will come down for certain segments of the workforce as the economy softens overall, but many segments will see little reduction in labor costs.
2. Supply disruption. Difficulties in getting supply, especially in certain industry segments, will continue to challenge productions, lead times and organizations’ ability to hit revenue numbers. Organizations are already feeling the impacts of their supply chain workforce being caught unprepared and ill-equipped, resulting in an unbalanced dependency on suppliers to meet performance expectations.
Some have begun strategic and workforce investment to help their supply chain teams shore up supply chain relationships for 2023. Many will continue to struggle, forcing these organizations to expend larger amounts of capital to acquire the real intangible value of supply chain relationships that are resilient enough to navigate disruptions.
3. Energy supply. The energy crisis will affect consumer demand, costs and production. For example, Germany is already getting natural gas from secondary markets and paying up to eight times the normal rate. What if Europe rations energy? How will that affect demand? The potential changes in global energy prices will impact companies in multiple ways as demand and supply become more volatile.
4. Water. We predict that this time next year, organizations will be talking about water supply and rationing. Proactive companies are already forming global task forces to analyze how water supply affects operations, and we expect the activity to amplify.
5. Housing market. A correction in the housing market will be a bigger factor in 2023 than many people think. Organizations generally underestimate how important housing is to consumer spending and budgets. Higher mortgages will impact consumer spending and will continue to drive volatility in demand. Corporations will pull back on investments, expansions and planned housing construction. We are already seeing those signs.
We have seen the effects on organizations of significant events like the COVID pandemic, the supply chain crisis, the impacts of war and other “shocks” over the past couple of years. These crises drove many companies to an inflection point — a time to make significant changes in processes or risk failure.
But what will be the impact of multiple and possibly simultaneous shocks in the next year? We predict that one-eighth to one-fourth of publicly traded companies that fail to respond to these events by adapting their workforce and supply chain strategies will disappear.
Preparing now is critical.
Organizations must act fast in Q4 to get ahead of the coming shocks by strategically reassessing their supply chain network and people supply chains. Your organization’s strategic planning process is the ideal time to look at these issues and evaluate your strategies.
To stay ahead of coming upheavals, we recommend the following steps:
Step 1: Assess overall supply chain operations and relationships. Value reliability and partnership over cost. Review 2023 strategic organizational plans with careful modeling that accounts for internal and external factors to assess both agility and resilience. For example, ask how energy and commodity prices impact your fundamental work, but also consider how changing your supply processes and supplier relationships may impact results. Look for strategies that can head off not only increased costs but also unseen risks, making your supply chain network an asset, not a liability.
Consider deepening partnerships with suppliers to work more cooperatively, bringing in suppliers who can act as trusted advisors rather than only those providing the lowest cost or ability to complete a transaction. Reliability, quality and shared risk will be increasingly important in supplier relationships in the future.
Step 2: Conduct multiple-scenario modeling. Companies’ annual plans tend to focus on one business scenario. The potential shocks of 2023 call for additional scenario modeling and contingency planning. Organizations must look at all the “what ifs” and map out their options in advance of expected challenges or in reaction to unexpected circumstances. Models should test various workforce combinations against the availability of supply and have the capabilities to evaluate business outcomes at specific intervals. For example:
Scenario modeling should consider different combinations of multiple factors and multiple goals to assess the implications for an organization’s strategic business plan.
Step 3: Focus on long-term agility and resilience. Building agility and resilience across all operations is the most important strategic initiative for organizations in 2023. Look specifically at the “one-two punch” of making supply chain networks and people supply chains more responsive and flexible. Cultural workplace dynamics don’t matter if organizations can’t get the supply chain piece right first.
The past few years have demonstrated how global supply shortages impact all aspects of a business. Organizations must evaluate alternatives to specific inputs or types of materials and services that may not always be available. Constraints on talent availability and capability have had similar ripple effects. Leaders must look more holistically at how to get work done in 2023 rather than how many people they need to fill jobs. These evaluations may reveal workforce changes that go beyond adding or cutting talent in the short term.
Flexible strategies allow companies to adapt to changing workforce circumstances and adapt their workforce to changing business circumstances — now and into the future.
A notable strategy that organizations can utilize to remain agile and resilient is to add a fractional CHRO. hrQ can provide fractional CHROs that are equipped to quickly step in and provide critical HR leadership. Learn more about our fractional HR services.
The safety nets of the past — borrowing funds in a loose capital market, cutting staff to save on labor costs or offering higher salaries to get the right employees — will be more costly and risky in the coming year.
These conditions will force new conversations. In past recessions, the easy answer to cost reduction was labor reductions. We believe talent will be too scarce in certain areas to justify across-the-board cuts. This scarcity will force organizations to ask hard questions about growth impacts, overhead levels, scalability, supply-to-revenue connections and many other topics.
Some departments where talent pools are scarce may need to overcut in some areas to preserve more critical talent in others. Some studies show that more than half of CEOs plan to cut jobs over the next six months, and remote workers may be the first to go.
Conversely, departments requiring advanced skills may need to add workers to preserve future labor supply and cushion against attrition. However, companies should also analyze the burden of paying for additional staff and the total impact of additional labor on workforce productivity.
While these predictions may sound like doom and gloom, there is still hope. Companies that start to create intentional and integrated plans that incorporate the risks of global and economic shocks will come out leaner, stronger and with a competitive advantage in their industries and in the marketplace.
There is a tremendous opportunity to permanently change the way we look at our workforce. Organizations can move to a much more flexible approach, where cost and capability are more responsive to fluctuations in economics, marketplace trends and industry changes. Organizations can implement a labor strategy that gives them the capability they need, where and when they need it, at the right cost.
Organizations must intentionally shift their supply chain strategy to integrate supply chain networks and supplier relationships, thereby reducing risks, improving quality and increasing value.
For large, publicly traded companies and smaller, private ones, the process of analyzing and adjusting supply chain and workforce strategies is the same. With careful planning, there are opportunities for any sized company if it makes changes now.
However, the stakes are higher for small companies. They must have the right plans and the right intelligence, and make the right moves now, because they don’t have a large margin of error. It’s urgent that they get their strategic planning right. If they do, smaller companies, which tend to be more agile, can actually become leaders in their industries by making significant step changes in their strategic plans for the coming year.
Now is the time for organizations to be bold and look ahead. Recognize that the chaos is coming, but have faith that if you position your organization the right way, there’s opportunity.
At hrQ, we analyze and synthesize massive amounts of data in a very short amount of time to assess risk, provide you with a matrix of options, help you make the best decisions and become your partner in delivering on those decisions. We can tell you how to cut costs and create value better than you can yourself because we can objectively look at the big picture. We leverage big data and bring a cross-functional perspective to understanding every function of your business. No one else does it like we can.
hrQ is uniquely positioned to assist organizations to navigate in this environment. Our proprietary Rapid Resource Optimization (RRO) method and other solutions can guide you through the chaos.
Contact us today to get started on a more efficient, cost-effective and functional strategic plan for 2023. And thrive through the coming chaos.
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