What do you call an assessment of future human resource needs of the organization in relation to its current capabilities?

Ed Gordon, author of Future Jobs: Solving the Employment and Skill Crisis, said, “You can have all the latest technology you want, but if you don’t have the talent behind it, your business is not sustainable.”

People are a key part of your organization’s growth, so incorporating them into your business plan is vital. What does your organization want to achieve and what people do you need to achieve it? What skills do your people have and what do they lack?

Conducting an HR gap analysis can help you answer these questions and stay ahead of your organization’s hiring, retention, and professional development needs.

What Is an HR Gap Analysis?

An HR gap analysis is a breakdown of your current workforce and the skills they possess compared to the workforce you will need to reach key business goals. Because it identifies upcoming personnel and skill deficiencies within your organization, an HR gap analysis is also sometimes called a skills gap analysis or workforce gap analysis.

Conducting an HR gap analysis can help you set your organization up for long-term, sustainable success.

This analysis helps your organization plan for growth, project hiring needs for your future workforce, understand the skills and experience in your current workforce, and develop strategies for overcoming the gap between the two.

Planning for Growth

An HR gap analysis can help your organization stay in front of changes in your workforce, both with growth and downsizing. Instead of hiring or firing reactively, you can plan ahead and take careful action at the right time. Operating this way makes it easier to grow responsibly, ensuring that each position is needed and your workforce is meeting your organization’s evolving needs.

Projecting Future Needs

When your organization plans for a big change that falls outside the scope of normal growth, such as a new product, branch, or division, then you need to have a people plan to support it. An HR gap analysis allows you to identify how many workers you’ll need, the skills and experience required, and the timeline for when and how rapidly you should hire them.

Analyzing Current Resources

Creating an HR gap analysis can also give you a clear picture of what value your current employees provide to the organization—it’s like taking people inventory. With this information, you can pinpoint candidates for management succession plans, discover underutilized skill sets, and identify employees who could be trained for another position. You should also include information such as retirement dates and average turnover so you know which employees you may need to replace in the future.

Building a Strategy

Finally, an HR gap analysis can help you develop a plan for filling the gap between the resources you have now and those you will need down the road. Are there current employees who would be well suited to work on the new product line? Internal hiring and retraining may be the best solution. Do you plan to build a new team of customer support reps? Starting on a hiring strategy could be the way to go.

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Typically your analysis will point to one or more of these strategies:

• Adjusting headcount (creating new positions, tweaking job descriptions, etc.)
• Professional development (cross-team training, internal internships, etc.)
• Restructuring (establishing a new team, promoting an employee to supervisor, etc.)

How to Conduct an HR Gap Analysis

You can conduct an HR gap analysis at any point, but it’s especially useful when your organization is struggling to meet its goals or before a big change. We’ve broken down the process into four simple steps:

1. Define Your Goals
2. Identify Key Skills
3. Assess Current Skills
4. Create a Plan

Define Your Goals

You need to start by setting up the target. What is your organization trying to achieve? Without a clear objective in mind, it is impossible to know what resources and strategies you need—and thus what gaps you need to fill.

You can define your goals on an organizational level or on a smaller scale, like for individual departments and teams. You may even have a combination of goals.

Identify Key Skills

Once you’ve set the goal posts, think through all the professional skills your team needs in order to hit that mark. This list should include both hard and soft skills so you can build a workforce that fits both your talent and culture needs.

Try mining current job descriptions and your organization’s values for ideas, as well as job ads from other companies that are hiring for positions you want to add. You can also ask your employees what skills they feel they’re lacking or wish they had on their teams. Then, for each of these skills, rate how important it is and the level of expertise your organization needs. Here’s an example of what that might look like:

Assess Current Skills

Using this new list of key skills, you can start taking inventory of what your workforce already offers. If you’re a smaller organization, you can do this by creating a skills list for each employee in which you compare their level of expertise in each skill to the level of expertise needed. Larger organizations may want to lean on performance reviews, manager assessments, and employee surveys to gather this information.

Create a Plan

With a list of key skills needed and an inventory of current skills, you will be able to see where the gaps are in your HR gap analysis. Your next steps are to identify the best solutions to fill these gaps and then act on those plans.

As we mentioned earlier, these solutions will probably take one of three forms: adjust your headcount, develop your people, or restructure your workforce. In all likelihood, you’ll end up with a combination of all three. Here are a few resources to help you with each strategy:

Professional Development

Restructuring

Building for the Future

Conducting an HR gap analysis can help you set your organization up for long-term, sustainable success. It gives you the information you need to hire more strategically and make the best use of the talented employees you already have. Instead of stepping blindly into an unknown future, you and your people will have a clear idea of where you’re headed and how to get there—and you can all move forward together.

Understanding your organization’s strengths, weaknesses, and future needs in terms of its workforce is essential to making effective staffing decisions. Conducting a workforce analysis helps you do just that.

Contents
What is workforce analysis?
Why should you conduct a workforce analysis?
How to conduct a workforce analysis

What is workforce analysis?

Workforce analysis is a process used to collect, analyze, and interpret data to assess the current state of the workforce and turn it into actionable information which organizations can use to plan to meet their future needs. The current supply of labor is compared to the anticipated future needs of the organization. Organizations can then address any identified gaps with a suitable solution.

Workforce analysis takes a broader approach than people analytics by using both employee and ROI data to make informed recruitment, retention, and employee management decisions.

These insights are crucial for an effective workforce planning process.

You can carry out several different types of analysis, including: 

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Supply analysis

Supply analysis assesses the current state of an organization, including the number of employees, their skill sets, and demographics. Projections are made based on turnover rates—the number of resignations, retirements, promotions, and terminations that have occurred so far—to help inform how this will affect the future workforce.

The workforce analyst can then create a profile of how the organization’s workforce would look in the future if there are no changes made or action taken within recruiting or training.

Demand analysis

Demand analysis predicts what the organization’s future workforce will look like based on a wide range of factors such as the launch of new products, business issues, competition, changing labor markets, and more. This analysis model considers both internal and external influences, along with the future direction of the business and the workforce needed to achieve its goals and objectives.

Gap analysis

Gap analysis is where the supply analysis is compared with the demand analysis. It identifies any gaps between the current structure of the organization’s workforce and its future anticipated needs, whether this points to a shortage or an excess. All future scenarios may be discussed and categorized based on which is most critical and likely to happen.

Why should you conduct a workforce analysis?

The business world is an increasingly competitive landscape. Therefore, if organizations want to continue meeting demands and growing, they will need to regularly update their business strategy by utilizing a range of workforce data to make strategic, data-driven decisions. Workforce analysis enables businesses to better understand their current workforce, including the following:

• whether staff costs are profitable or excessive,
• where there’s a shortage of employees,
• where there are skills gaps in critical roles,
• the characteristics that are present in top-performing employees,
• types of training that have the highest return on investment,
• where there’s a lack of training,
• and much more.

These valuable insights can lead to a positive impact on your bottom line.

Recruitment & staffing costs

Workforce analysis can help determine whether a company’s staffing costs are optimal or need increasing or decreasing. Certain recruitment strategies may be flagged as ineffective. Then, Human Resources can take steps to pivot their approach and double down on the most effective ones.

Workforce analysis also helps businesses identify the key skills and behaviors needed for success in a particular role. That way, they can hire based on these characteristics in the future. The findings can also help organizations avoid biased hiring decisions, reduce ineffective training initiatives, and more.

Predict future staffing problems

Workforce analysis will also help businesses identify the levels and types of staff needed as the business evolves. It helps them maintain an optimum number of employees. This enables managers to make more informed transfer and severance decisions. At the same time, they can avoid the loss of critical skills and top talent.

You can identify skills and leadership gaps early on and plan for them accordingly. Organizations can offer existing employees further training, nurture potential, set performance benchmarks, and map succession paths for the most promising talent.

In other words, you’re able to make effective adjustments to your talent management strategy.

Improve company culture

Aside from the savings in time and money, workforce analysis can also foster more cohesive teams and improve the company culture. Metrics such as productivity levels and undesired behaviors of ill-suited employees can be tracked. Using these results, businesses can improve the retention rate of their highest-performing employees by identifying turnover triggers, which leads to greater efficiency.

It also helps managers understand what factors help attract efficient employees and design strategies to further motivate their workforce, inevitably leading to greater employee satisfaction and team morale.

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How to conduct a workforce analysis

1. Define a challenge you want to address

The first step in conducting a workforce analysis will depend on the plans and goals of a business. You will also need to consider external factors such as competition, expansion or constriction of markets, workforce availability in the area, and more. For example, if you plan to launch a new product line over the next 12 months, you will need to know how many new employees you require (if any), along with the core employee competencies, to make this a success. 

• Does your current workforce have the skills needed to launch a new product line with minimal training?
• Will they respond well to these changes and remain loyal to the organization?
• If you need to hire more employees, how many do you need?
• And will you find those with the skills required to perform in the labor market?
• What will your organization need to do to attract and retain those employees?
• Will any other changes in demand affect the number of employees you need?

2. Collect relevant data

Once you know the challenge you want to address, the next step is to collect the relevant data needed to measure this. This could include workforce demographic data, skills data, performance data, training completion data, employee survey results.

3. Decide on the right analysis method

The next step is to decide which analysis method is most suitable for analyzing your data sets. Here are some of the most common methods:

Trend analysis

Trend analysis refers to comparing data over a set period in the past to identify any trends. You can use strong trends to make future decisions. For example, if a business notices that employees’ productivity gradually decreases over time, they can use these findings to determine the cause and work to improve productivity. 

Correlation analysis

Correlation analysis is used to study the strength of a relationship between two variables. For example, if an organization wants to determine whether a lack of training causes low employee engagement.

Predictive analysis

Predictive analysis uses a combination of historical data, algorithms, and machine learning techniques to predict the likelihood of future outcomes (not just numbers but also behaviors) based on past data so that businesses can make accurate forecasts.

Prescriptive analysis

Prescriptive analysis relies on historical data. It is typically used after predictive analysis to plan the most suitable course of action for the organization to meet its goals. 

Diagnostic analysis

Diagnostic analysis identifies the causes of success or failure within a workforce, which can be used to correct failures and boost business performance. For example, if there’s a trend for employee retention rates to drop as promotion level increases, a diagnostic analysis would help you discover why this is happening.

Don’t hesitate to ask your people analytics team or your data department for help with choosing the right type of analysis and for running the analysis. However, upskilling in people analytics will help you gain the necessary understanding of core statistical concepts and analyses. That’s extremely helpful for analyzing and interpreting data-driven insights.

4. Analyze and present the results

Once you’ve selected the most appropriate analysis method, the next step is to conduct the analysis and then present the findings to relevant business leaders and stakeholders. You can display the results as a dashboard or in a report—what’s important here is that it’s clear and easy to understand. Visual elements are immensely beneficial here, particularly when conveying complex ideas.

5. Determine what action you’re going to take

The final step in conducting a workforce analysis is to determine the most suitable course of action for the business. For example, if your results identify a future skills gap over the next 12 months, now is the time to plan how you will avoid this. This might mean training existing employees or hiring as many new ones as needed with the right skills and integrating them into the existing team.

In conclusion

The workforce is a vital business resource for any organization. In a word, identifying how you can maximize its capabilities through workforce analysis will help you make your workforce planning future-proof.