Recently, I encountered a new term in workforce planning that caught my attention: NNACV (Net New Annual Contract Value). As someone who’s been tracking the increasing focus on workforce planning, this shift in headcount accounting intrigued me. In the age of efficiency, it is only natural that the biggest expense on the balance sheet undergo transformation, yet I couldn’t help wonder if this a new norm, or has it always been the standard approach?
But let’s start from the basics.
What is workforce planning? Workforce planning, at its core, is the evaluation of an organization’s current and future talent needs and the strategy to bridge any identified gaps. When executed effectively, it optimizes labor costs (typically the largest expense), responds to changing customer needs, adapts to economic and technological trends, develops talent strategies, targets inefficiencies, improves retention and productivity, and delivers strategic value through talent.
While workforce planning isn’t new, its approach is evolving rapidly. Here are three reasons why it’s under the spotlight and undergoing transformation:
- The Efficiency Imperative: You’re probably tired of the word but the season of efficiency hasn’t concluded yet. When cash is tight, everyone looks at their biggest expense differently. Each headcount must be tied to revenue, including cost centers like HR and Finance. The days of easily exceeding planned headcount or swapping cheaper roles for expensive ones are over and decisions on which role, level, location, are undergoing additional scrutiny. This explains the shift from simple headcount (HC) to NNACV-based planning. One headcount is no longer just one headcount.
- Global Complexities: Rising international uncertainties, as we are witnessing today, influence talent sourcing and location strategies. Global mobility directly impacts workforce planning, as does the need to exit from potentially unstable locations.
- Technological Evolution: The rapid evolution of technology continuously reshapes required skill sets and talent availability. All robust workforce plans take into consideration which roles may not exist tomorrow and which roles may emerge; and organizations must go where the talent is, even if it means dealing with complex labor laws or work councils.
What are the major workforce planning levers one must pull?
Every business must begin with clear goal-setting – defining its key objectives over one, three, and five-year horizons and their anticipated revenue impact. These strategic goals then inform the people plan: determining the necessary workforce size, employee levels, job families, and locations required to achieve these objectives. Effective organizational design and workforce planning are two sides of the same coin. A well-developed workforce plan ensures the business maintains a long-term focus while establishing both an optimal organizational structure and a robust talent pipeline. Here are six areas you shouldn’t take lightly:
- Spans of control/leverage: The issue of “manager squeeze” has garnered significant attention recently, particularly in an environment focused on cost control. As Elon Musk famously critiqued, having “ten managers for every one employee” creates multiple challenges beyond just financial impact. Determining the optimal manager-to-employee ratio is crucial for each job category. Too many managers lead to bureaucratic bloat, while too few can result in inadequate supervision and support. Both extremes compromise organizational effectiveness and directly impact revenue. During high-growth periods, organizations often accumulate excessive management layers that must later be reduced during economic downturns. A flatter organizational structure achieves multiple benefits including cost efficiency, faster decision-making, reduced bureaucracy and enhanced innovation by preventing ideas from getting lost in management hierarchy
- Job level mix: Consider this scenario: A team operates under a flat headcount mandate for the fiscal year, allowing only back-fills. Due to the economic slowdown, employee attrition has dropped to historic lows. The team, committed to talent development, continues to promote employees as they demonstrate readiness. A year later, this creates an unintended consequence: the organizational pyramid becomes top-heavy despite every backfill requisition being opened for only entry level roles. This situation creates two significant problems. First, workforce costs increase as higher-level positions command larger salaries. Second, job satisfaction and morale decline when senior employees must handle entry-level tasks due to the upside-down structure. This scenario illustrates why maintaining an appropriate job level mix requires constant attention. Without active management of the organizational structure, even well-intentioned promotion practices can lead to operational inefficiencies and employee dissatisfaction.
- Job family mix: The balance of job families is inextricably linked to level mix within an organization. Success depends on matching people with the right skills to appropriate tasks. For instance, when software engineers spend significant time on program management duties, it may signal the need for a dedicated program manager. This allows highly skilled technical talent (typically in more expensive roles) to focus on their core responsibilities. However, such decisions require careful analysis. Adding a full-time program management position may not be cost-effective if the workload doesn’t justify it. Like all organizational design decisions, job family distribution directly impacts revenue and requires thoughtful consideration.
- Location strategy: Location has become a crucial factor in hiring decisions, particularly for organizations committed to an office-centric culture. Ideally, teams should be co-located with their managers rather than dispersed globally, fostering better collaboration and mentorship. Strategic location selection must balance multiple factors. Organizations should prioritize areas with robust talent pools while avoiding markets with prohibitive costs. For instance, establishing operations in second-tier cities can offer access to great talent at more competitive costs than major metropolitan hubs. Beyond talent availability and cost considerations, location decisions must account for additional risk factors. These include security concerns, intellectual property protection, geopolitical stability, and local regulatory environments. Like other fundamental organizational decisions—such as spans of control, level mix, and job family distribution—location strategy represents one of the most consequential choices leaders make regarding their workforce.
- Talent pipeline: The most cost-effective talent is the one already within your organization. While this may seem obvious, it’s a fundamental truth: existing employees understand your culture, navigate unwritten organizational norms, and typically accelerate faster into new roles or levels. By developing internal talent, organizations avoid significant costs associated with external hiring, training, and onboarding. When internal promotion isn’t possible, maintaining an active candidate pipeline becomes crucial. This proactive approach minimizes vacancy periods and ensures swift fulfillment of open positions. A robust talent pipeline, whether internal or external, is essential for effective workforce planning. Extended vacancies can severely impact an organization’s ability to meet its objectives and revenue targets. Therefore, strategic talent pipeline development isn’t just about filling current openings—it’s about creating a sustainable framework for future organizational success.
- Diversity: Despite various external pressures (including political), long-term workforce planning must prioritize diversity as a core strategic element. In the tech industry, for example, the challenge is twofold: competing for existing diverse talent (“eating a larger chunk of the pie”) while simultaneously expanding the talent pool (“baking a bigger pie”). This transformation requires patience and sustained commitment. While quick-fix solutions might be tempting, building truly diverse teams takes time and intentional effort. Smart organizations recognize that diverse teams—however diversity is defined—bring unique perspectives and innovations that ultimately deliver superior value to customers. Therefore, diversity cannot be an afterthought in workforce planning—it must be woven into the fabric of every talent strategy and organizational decision.
That’s a lot! Who owns workforce planning?
While multiple stakeholders contribute to workforce planning, primary responsibility typically resides with HR. The process involves several key partnerships: business works with HR Business Partners to determine headcount requirements, finance monitors cost implications, and talent acquisition manages recruitment pipelines. HR’s central role in workforce planning makes strategic sense, given their unique position at the intersection of organizational needs, talent management, and business strategy. However, success depends on maintaining strong partnerships with both business leadership and finance to achieve optimal staffing levels—preventing both the inefficiencies of overstaffing and the operational risks of understaffing.
In conclusion, effective workforce planning has become a critical differentiator for organizational success. Those who master it can better navigate economic uncertainties, adapt to technological changes, and maintain competitive advantages through their talent strategies. The key lies in maintaining flexibility while ensuring alignment with business objectives and financial constraints. So, the next time someone in the room is discussing the closer interlinking of NNACVs to HC, I’m definitely chiming in to add a perspective.
The HR Business Partner Story 