What is workforce planning?

This critical function bridges human resources strategy with overall business strategy, helping organizations anticipate and prepare for future talent needs rather than simply reacting to immediate staffing gaps.

At its essence, workforce planning helps HR teams address a fundamental question: What does our organization need from its people to succeed, both now and in the future? The discipline has become increasingly vital in today’s rapidly changing business environment, where technological disruption and evolving work models continuously reshape talent requirements. “Every job is going to be changing,” says Kim Morick, Global Leader for AI-first HR at IBM Consulting. “So, you need to figure out which skills each job will require.”

In recent years, strategic workforce planning has emerged as a critical tool to meet rising challenges as technology reshaped the global business landscape. According to the IBM Institute for Business Value, only 6% of the workforce historically needed reskilling—but by 2024, that number rose to 35%, or over 1 billion employees worldwide. Increasingly, reactive hiring and training practices no longer suffice to handle such wide-ranging talent needs.

Organizations that excel at negotiating workforce needs gain significant competitive advantages. According to research from the consultancy McKinsey, S&P 500 companies performing well on talent investments generate 300% more revenue per employee than the median firm.

Generally, firms with carefully rendered strategic workforce planning practices experience lower recruitment costs by anticipating needs well in advance. They also maintain productivity during transitions, reduce costly turnover and position themselves to capitalize on new opportunities quickly. And perhaps most importantly, these companies avoid the crisis mode that follows unexpected talent shortages or surpluses.

Scenario planning helps organizations prepare for uncertainty by developing workforce strategies for multiple possible futures. Rather than betting on a single forecast, organizations might create workforce plans for scenarios like rapid growth, economic difficulty, major technological transformation or regulatory changes. This approach builds organizational agility and reduces vulnerability to unexpected developments. 

Skills planning has taken on heightened importance as the half-life of skills continues to shrink. This process takes multiple forms over the course of the skills lifecycle: For instance, organizations must identify current and emerging critical skills. They should also assess the availability of these skills externally and in the external market. Finally, an enterprise should decide whether to build skills through internal investment, creating pathways for employees to acquire new capabilities. This strategy often involves investment in learning technologies and fundamental rethinking of career development models.

Succession planning represents a critical subset of workforce planning, focusing specifically on identifying and developing future leaders—as well as ensuring continuity in key positions. Through this process, organizations assess their leadership pipeline and identify employees with high potential. They also create development plans for successors and manage knowledge transfer from experienced employees. Without robust succession planning, organizations risk losing critical institutional knowledge and leadership capacity

Workforce segmentation, in practice, acknowledges that not all roles and employees should be managed identically. Organizations identify their most strategic or critical positions where scarcity creates risk and segments where various approaches might yield the highest returns. This approach enables more targeted and effective resource allocation, rather than spreading efforts uniformly across the entire workforce. 

Workforce planning often follows a systematic four-step process that creates a clear roadmap from current state to future needs: 

Supply analysis examines the organization’s existing workforce capacity. This step involves conducting a comprehensive audit of current employees, including their skills, competencies, experience levels, demographics and performance. 

Demand analysis focuses on future workforce requirements driven by business strategy and external factors. Organizations project what roles, new skills and headcount they’ll need to achieve their strategic long-term objectives.

Gap analysis compares supply and demand to identify discrepancies between current capabilities and future requirements. This approach reveals where the organization will face talent shortages or surpluses, which skills will be in deficit and where succession risks exist.

Solution analysis develops strategies to close identified gaps. An action plan might include external recruitment to bring in new talent and internal development programs to build needed skills. It can also include redeployment to move people into high-need areas, succession planning to prepare for leadership transitions or restructuring to eliminate surplus capacity.

Modern workforce planning relies heavily on data-driven insights. Organizations collect and analyze diverse data sources including HR information systems containing employment history and performance data. Other systems include talent management platforms tracking skills and development and time and attendance systems revealing productivity patterns, exit interviews and employee surveys providing qualitative insights and external labor market data.

Advanced organizations employ sophisticated analytical techniques such as predictive analytics to forecast turnover or identify risks. They might also use network analysis to understand collaborative patterns or external benchmarking to understand competitive positioning. These tools transform workforce planning from an intuitive, knee-jerk exercise into a rigorous and evidence-based discipline. 

AI enhances workforce management and planning in several transformative ways, particularly as business leaders seek to map complex job architectures across large firms. Machine learning algorithms process enormous datasets, often in real-time, to identify subtle patterns in workforce behavior and organizational performance. Meanwhile, natural language processing enables AI systems to analyze job descriptions, resumes and performance reviews to map skills across the entire employee lifecycle.

Meanwhile, generative AI assists with personalized development plans at scale to help existing employees acquire the skills necessary to remain competitive in emerging markets. Increasingly, these tools are integrated with HR systems that pull data from multiple venues to provide a single source of HR data.

While the practice of implementing AI and other intelligent tools for effective workforce planning will differ depending on a company’s individual objectives, some general best practices include:

AI systems are only as good as the data they consume. Organizations must establish robust data management practices to ensure that workforce data is accurate, complete and properly governed to protect employee privacy and prevent algorithmic bias.

Organizations must ensure that AI-driven workforce planning tools are transparent and fair—and that the use of AI aligns with the organization’s broader mission. Some businesses might feel comfortable using AI to map only the current workforce, while others might engage AI tools to audit future staffing and skill needs. Careful attention to how intelligent tools integrate to the organization’s strategic objectives facilitates smooth integration. 

Change management becomes critical as AI transforms both how talent planning is done and what is being planned for. Workforce planners must help employees understand how automation will affect their roles, provide clear pathways for reskilling and creates a culture of innovation that views technological change as an innovation rather than a threat. 

Leadership capabilities must evolve to navigate this new landscape. C-suite and human resources stakeholders need to upskill by understanding AI and automation sufficiently to make informed decisions about workforce strategy and AI implementation. They must also develop skills in managing hybrid human-machine teams and leading through significant technological transitions. 

Workforce planning delivers substantial value across multiple dimensions of organizational performance, creating advantages that compound over time.

Financial predictability emerges from proactive planning. Organizations reduce expensive emergency hiring and other inefficiencies. They minimize overtime costs and burnout that result from understaffing. Overstaffing situations that drain profitability without adding value become rarer. Workforce planning also enables more accurate budget forecasting. Additionally, finance leaders gain visibility into future workforce costs, allowing better allocation decisions. 

Rather than hiring whoever is available when a crisis hits, organizations engaged in workforce planning target ideal candidates. They build talent pipelines for recurring needs and to compete more effectively for top performers by engaging them before urgent needs arise. Internal development becomes more targeted when future needs are anticipated years in advance, rather than months. This approach leads to a more skilled workforce driving superior business outcomes. 

Employee experience improves when workforce planning incorporates development and buy-in. Employees see clearer career paths when an organization has mapped future opportunities, and internal mobility becomes more common as skills gaps are filled from within. This strategy helps employees feel more secure, boosting engagement scores and reducing turnover. 

Business risk decreases when organizations identify and mitigate talent-related vulnerabilities before they materialize. Successful workforce planning initiatives help business leaders spot succession gaps in leadership, anticipate changes to the labor market and prepare for multiple future scenarios rather than betting on a single forecast. 

Strategic alignment and informed decision-making represent perhaps the most fundamental benefit of strategic workforce planning. When workforce planning is executed effectively, each talent decision directly supports the broader business plan. Organizations then execute strategic initiatives more quickly because they’ve already developed or acquired the necessary capabilities. Digital transformations succeed more often because the right talent is in place when needed. This alignment also ensures that workforce investments deliver a measurable return on investment.