Know Your Internal Labor Market

Haig Nalbantian: For leaders to get their hands around a more viable and practical vision of the internal labor market, I think they need to do a number of things.  There are some readings -- Play To Your Strengths, a book we wrote a long time ago back in 2004, lays out in considerable detail what this construct is and what the methodology is to model and manage it are.  So that’s one starting place.  

The second thing is to ask the right questions.  Leaders know that every market has two fundamental variables: quantities and prices.  There’s the demand side of the market, there’s the supply side of the market, they interact with each other as anyone who’s studied any economics knows, and you get some kind of equilibrium, we hope.  Every leader understands that.  They need to be thinking about those things relative to their internal labor market, to be asking the questions relating to demand. 

So if I’m thinking about demand, the demand for labor is always a derived demand.  It comes from the ultimate demand from the products or services that you deliver.  So as a business leader, you should always be asking the question, if this is what we’re trying to accomplish with our business, if we’re moving to sell or deliver these kinds of goods and services, what kind of workforce do we need to meet those goals?  What’s the quantity of people we need in our workforce?  What is the right mix of skills, know-how, educational background, types of experience, mix of job families, I could go on and on.  What are these characteristics that we need going forward?  And how do they differ from what we’ve traditionally had?  So are there any areas where there are major changes required in order for us to be successful?  That’s kind of the in the workforce, the capabilities of the workforce. 

And you also need to speak to the behaviors of the workforce.  So, do we need more teamwork or is it really about individual achievement and individual quality?  Do we need more risk-taking?  Do we need more employees who are more entrepreneurial or maybe in the banking industry this day you say, “No, the exact opposite.  We need more diligence, and control, and attention to detail.”  So maybe a different set of aptitudes or capabilities we need going forward. 

You as a business leader need to be thinking about that translation and insisting that those responsible for your workforce, whether it’s HR or other parts of the line operation that have a strong influence on acquisition and development of talent, I need to know that you’re thinking about this and you can tell me what the workforce requirements are.  That’s the demand side.  

Like a good market person, you’re going to look at the supply side too.  Do we know where we’re going to get that supply of labor?  Is our current pipeline adequate to meet those needs, or do we need to develop people faster or go to the outside market to get them?  If we have to go to the outside market to get them, do we know where such people are and how costly it is to acquire these kinds of people?  And do we know that our reward systems are motivating the right behavior?  So if I say I need more risk taking entrepreneurial behavior, can you tell me what in our rewards system is actually motivating that kind of behavior?  If you tell me we need to grow global talents or we need to move people around our businesses, can you tell me if our rewards system or the prices in our market are actually encouraging people to move?  If you’re an employee and you move out of your comfort zone, you go on an ex-pat assignment, you go into another business line, you’re taking more risk than if you just stayed put in your comfort zone, right?

Well risk and reward are always aligned.  You don’t get people to take more risk if, on balance, there isn’t a higher prospect of reward.  So a business leader understands that.  That’s what they’re all about.  They need to be asking those questions about their workforce and insisting that HR have answers to those questions that have a strong factual basis.  That would be my advice to business leaders.

Start thinking about this whole workforce domain in the same way you think about other areas of business, recognizing, and this is all important, that if you thought asset management on the financial side was complex, asset management on the human capital side is all that more complex because people are not things, obviously.  People have volition.  A machine doesn’t decide I’m getting up and going on vacation today, or I’m fed up with my boss I’m not going to work.  People do.

Also, people change as they work. You know, your machine doesn’t change very much.  Maybe it depreciates over time, but there isn’t development occurring as that machine operates by and large, right?  People change.  The human capital asset, unlike any other asset, is always in development.  It’s always dynamic.  So as I work, I learn.  As I learn, I have bigger appetite to learn.  As I interact with customers and people, I acquire new information.

It’s an incredibly complex and powerful asset so the tools we have for other kinds of asset management need to be all that more balanced, refined, and ambitious to manage an asset as complicated as this.  So in the age of human capital, I think business leaders ought to be thinking this way and really devoting the same kind of attention and applying the same kind of mindset that they’ve traditionally done in so many other areas. 

Directed / Produced by

Jonathan Fowler & Elizabeth Rodd


The hiring and managing of employees is the achilles heel of many an otherwise tightly-run organization. Why? Because human beings come with many more variables than do widgets – we’re trickier to assess, our motivations are complex, and we change over time.

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