Ignore the demand side of talent at your own risk.

There has been a lot of discussion recently regarding issues with the supply of labor. At the end of the day, the laws of supply and demand must be reckoned with in order to create value.

Normally, we as CEOs do a great job linking our business strategies to talent supply. We take a proactive approach to establishing and securing a sufficient supply chain of capabilities. We allocate the best available people to our most strategic work. We use analytics to ensure they perform well. What we don’t have as good a handle on—yet—is linking our business strategy to talent demand.

The laws of supply and demand apply as directly to talent as they do to anything else in business. Prices drop when demand decreases or supply increases. Prices increase when demand increases or supply decreases. In many industries and markets, the latter is what we are experiencing now.

Managing the demand side of talent is, essentially, managing the allocation of human capital.

As Frank Blake, former chairman and CEO of The Home Depot, said, “Two of the most important jobs that a CEO is responsible for are the allocation of capital and the allocation of talent.” Link your business strategy to capital allocation and talent demand and you will be in a position to do amazing things. What are the points of leverage to do so?

 4 Points of Leverage

When it comes to talent demand, there are four points of leverage for value creation:

1. The Business Strategy - Although we do not have to be superior strategists, we do have to be able to define the sources of today’s value and tomorrow’s value. That means we better understand the business strategy as well as everyone else in the C suite does, as well as its implications for the organization.

2. The Work - We have to get quite finite about what needs to be done to deliver the strategy, particularly in the most critical areas of the business. This puts us in a position to understand the handful of critical roles needed in the organization to deliver the work that is going to bring the strategy to life. Funding these roles will make the company’s distribution of financial resources a successful capital allocation.

3. The Roles - These are roles that will have an outsized impact on delivering the work. Since things in organizations happen cross-functionally in the seams (rather than in silos), about two-thirds of these critical roles will be scattered throughout the organization at n-2 and n-3 levels below us.

4. Alignment - Results are at risk without airtight alignment in the C suite around the business strategy, the work, and the critical roles. A cohesive leadership team will focus on how these elements all come together and who and what will deliver the value agenda.

Without alignment, you can’t prioritize. Without priorities, you can’t focus. And without focus, you cannot deliver the value.

Take the case of John*, a founder CEO I met last year who had just begun rolling up specialty medical companies (including physical practices, laboratory services, and health technology startups) into his integrated health network. His plan was to 5x his business in four years (literally, take it from $750M in enterprise value to $4B) by starting in a select few states and then expanding across the nation. He proudly told me he was in discussions with three different private equity firms, all of which were seriously interested in healthcare as a core investment sector.

I asked John if he was sure he had enough of the right talent in the right roles, and if they were set up well to deliver the work that would drive his roll-up strategy. He reassured me he would be able to keep running his ship with just the few executives he already trusted on his leadership team. I pointed out that, with such an aggressive roll-up timeline, decisions were going to have to be made throughout the organization, not just at the very top, and execution would have to be driven hard wherever value was being created in the enterprise. We discussed what it takes from a talent perspective to drive aggressive roll-up strategies. He drew up a rough list of the existing roles in the organization which he thought would be critical for driving the value and shared with me his gut assessments of the talent he had in them. We both realized that, based on this information, if he kept those people in position, at least a quarter of the $4B enterprise value he expected to achieve would be at risk.

John, the consummate problem solver, went off and ran with this off-the-cuff insight. He moved people whom he thought didn’t have the chops to drive the roll-up strategy out of existing critical roles, replacing them with individuals he thought were better prepared to meet the challenge.

What he didn’t do was intentionally seek the execution risks in his organization. Consequently, he forfeited a significant chunk of the value.

Recruiting, hiring, and retaining medical technicians was one thing the company would have to be able to do exceptionally well to keep the roll-up strategy on track. Unfortunately, the following three chunks of work, all necessary for supporting the growth of the enterprise, were not even on John’s radar.

1. Develop a sourcing strategy - The enterprise needed to hire 400+ medical technicians to support strategic growth, plus have an additional supply of technically savvy talent on hand to cover surges in demand due to black swan events like another pandemic or regional climate disasters. High-volume recruiting and selection would be required to keep the talent pipeline filled and to optimize retention rates.

2. Shift to a proactive demand-driven culture - When it came to hiring 400+ technicians, the company’s reactive supply-driven culture would not be able to deliver that many recruits in time. Accountability in the organization would have to be modified so that both recruiters and frontline managers would take responsibility for proactively acquiring and retaining talent.

3. Build a staffing team that drives hiring efficiencies - The work here involved setting up the people, systems, and processes—and getting them to work very well together—that would make it possible to go out and find, hire and retain qualified technicians.

John let these three chunks of work slip between the cracks. He didn’t see them, so he didn’t assign them to a new role. And so none of this work was done. Technicians didn’t get hired. Without technical support, new accounts didn’t get opened and existing accounts didn’t grow. Market share didn’t increase and revenues stalled.

John called this week to tell me he just got fired.

When you think about your business strategy and the HR risk to execution, consider there are only a few things that are really important. Know and understand the business strategy and its implications. Align around the work to be done and the critical roles necessary to deliver that strategy. By understanding these three things first, you can understand your talent demand. From there, you can then do the thing we have traditionally always raced to do first: assess the talent to make sure they can do the work of the critical roles.

Magic happens when all four things—strategy, work, roles, and talent—come together in a beautiful “click”. But be forewarned. It takes hard work. You have to make choices. And you have to use judgment.

*Name changed for privacy.