In an 18-month trend of layoffs and economic uncertainty, the global workforce has shown both resilience and turbulence, notably in the tech sector, where 2023 layoffs exceeded the previous year by 59%. With more layoffs announced in 2024, it’s evident that companies are shifting toward operational efficiency.
Against this backdrop, strategic headcount management is more critical than ever. Businesses equipped with effective headcount practices have shown a more remarkable ability to weather economic challenges and avoid layoffs.
Strategic headcount management, a.k.a. “headcount procurement”
Strategic headcount management is an essential aspect of ongoing organizational planning. It ensures that a company has the correct number and mix of employees to achieve short and long-term goals. This approach involves a careful analysis of the organization’s current workforce, future goals and the external labor market.
While headcount represents 60-70% of an organization’s operating budget, it rarely gets the same level of scrutiny as other expenses like software. Strategic headcount management introduces this necessary rigor. It stresses the importance of structured approvals at various levels to ensure alignment with budget and goals. Such judiciousness has helped companies like Docker and Postman eliminate six figures worth of unapproved headcount spend, even as they scale rapidly year-over-year.
By excelling in strategic headcount management, companies can accelerate decision-making without sacrificing quality — leading to informed, proactive decisions that drive efficient growth. As an example, Utah-based Spiff overhauled its headcount management in the wake of a Series C investment. With enhanced cross-departmental collaboration, streamlined processes and improved forecasting accuracy, Spiff fueled responsible yet rapid growth. The move paid off, as Spiff was acquired by Salesforce earlier this year.
Unlike traditional hiring practices that react to immediate needs, strategic headcount management is proactive, data-driven, collaborative and aligned with the overall business strategy.
What’s involved in strategic headcount management?
First, companies need to understand their existing workforce and run rate by examining “effective headcount” and “effective headcount spend.” Base these numbers on current headcount in-seat, open jobs, approved jobs that haven’t been hired yet (also known as “TBH”) and future terminations. Calculating effective headcount requires a process called headcount reconciliation, which can be automated to improve efficiency and accuracy.
Next, it’s vital to track hiring progress in real time to keep headcount forecasts accurate. While forecasting is essential primarily to finance teams, it’s recommended that all stakeholders in the hiring process get visibility into plans and hiring progress with appropriate access controls. This enhances collaboration across teams and helps functional leaders remain agile in goal-setting.
Another component of this approach is org design, which relies on an interactive org chart to analyze company hierarchy. An org chart is most effective when it is synced with your existing headcount roster and headcount plan to show both current and future employees, helping you make more informed decisions.
A final component worth discussing here is scenario planning, a process that allows company leaders to create and analyze multiple versions of a headcount plan based on different factors. The crucial element here is that scenarios become a year-round planning exercise that helps leadership accelerate decision-making as the company grows or as the market changes.
The benefits of strategic headcount management
Strategic headcount management offers a host of benefits that streamline organizational efficiency, enhance financial control, and bolster agility in response to market dynamics. Key advantages include:
- Control and optimize headcount costs: Headcount reconciliation is very time-consuming for most companies, which rely on people to do this work because their systems of record are not integrated. For example, Docker’s financial analysts spent about five hours per week manually reconciling headcount by hand. With strategic headcount management, Docker brought automation to headcount reconciliation processes and can now forecast in real-time, control headcount costs and refocus analysts on higher-value work.
- Accelerated decision-making with enhanced visibility: Market conditions are changing faster than ever, but many companies need the right visibility into headcount plans and hiring progress. Strategic headcount management unlocks visibility for all key stakeholders with the right access control, giving them the data and insights to make informed decisions faster. As Keith Masuda, VP of finance at Modern Treasury, explains, “We use dashboards designed around relevant headcount KPIs to get real-time signals that help us dynamically adapt to business changes and shift capital allocation sooner.”
- Headcount governance: Traditional headcount workflows, such as approvals, backfills and future terminations, are notoriously difficult to track. Disparate channels and systems create information silos, which slow down critical processes like hiring and forecasting. At Postman, jobs would get added to the master headcount spreadsheet with no way to track whether the new job was approved and budgeted. By bringing standardized, centralized workflows to their process, every headcount decision at Postman is now justified, budgeted and aligned with strategic objectives — mirroring software procurement.
- Operational excellence: Put simply, headcount management involves significant manual work that is time-consuming and error-prone. As a company grows, the amount of time and potential for error increases. With automation, integrated data, and timely cross-functional collaboration, strategic headcount management reduced manual work by 75% and boosted productivity by 50% at companies like Docker, Postman, IonQ, and Invoca.
- Avoid overstaffing, overspending, and layoffs: By a combination of the above benefits, strategic headcount management ensures that a company doesn’t overstaff even during times of aggressive growth. Docker, Postman and Spiff all doubled headcount in consecutive years without over-hiring or overspending. Simultaneously, strategic headcount management helps avoid under-staffing, which puts strategic goals at risk. It provides headlights that allow the company to look forward rather than make difficult decisions in the face of economic challenges.
Strategic headcount management is not just a process improvement; it’s a transformative approach that equips companies with agility, efficiency and foresight.
In turbulent economic times, strategic headcount management should be the foundation for organizational resilience and stability. Effective headcount management practices not only help companies navigate rapid growth but do so without concern for future layoffs, safeguarding both the company’s future and the well-being of its workforce. It is an indispensable initiative for any business aiming to thrive amid the ebb and flow of economic tides.