HR Strategy = Talent Strategy: It’s All About Build, Borrow or Buy

The creation of value in companies is primarily linked to intellectual capital driving cash flow, constituting over 80% of average market value. Companies like Apple, Visa, and Microsoft derive nearly all their value from intellectual assets rather than tangible ones. This intellectual capital originates from people, making talent the most critical of assets. However, many companies, lack a talent strategy that aligns with this economic reality, often hold outdated views on the availability of skilled talent despite acknowledging its importance. At its core, talent strategies for organizations across most industries need to outline a build, buy, borrow strategy in order to ensure the growth of enterprise value in the future, which is entirely dependent on talent.

If you're reading this article, you realize that we're operating in the most challenging marketplace for talent in our lifetime. As competition for top talent intensifies and skills shortages persist, companies must plan for new ways to attract and acquire the right talent for the right jobs to remain ahead of the game. By planning for a strategic mix of employed and contingent talent, organizations can take a sure step in the direction of optimizing organization cost, flexibility and effectiveness for the long term. In the absence of such a strategy, costs balloons and quality sinks as leaders use ad hoc methods to fill the hiring vacuum, particularly with respect to high volume roles - overtime, temp agency use, faster (and worse) hiring decisions, etc.

The optimum mix of employed and contingent labor allows companies to:

• Better align the interests of their talent with the interests of their company.
• Maximize the talent market in all of its forms for the right roles.
• Improve their ability to expand and contract their workforce with changing market and economic trends.

Given these benefits, organizations must recognize that intentionally structuring their workforce to optimize its mix will benefit both financial and human capital investors. Choosing to build talent internally, hire from the outside or borrow talent on a temporary basis depends on the facts and circumstances for any given situation and is a critical strategic decision.

So the question is: Build, Buy or Borrow?  Each choice has pluses and minuses from a talent perspective. Companies should undertake an analysis of the business plan for growth, as well as the talent implications created by that plan, in order to determine which hiring choice – or combination of choices – would be most appropriate for a given situation.  With respect to each of these options, it’s essential for an organization to weigh its administrative and programmatic capabilities first in order to assess the likelihood for success.  Build, Buy and Borrow each requires specific (and distinct) internal capabilities to execute well.

Here, we’ve outlined the key considerations of each strategic choice.

Build

If an organization’s talent need is ongoing, the work is particular to the company, and org design drives internal mobility and training, then "build" might be the best strategy to consider. For instance, a retailer with a structure that includes shift supervisors, assistant managers, store and district managers should consider a structured, replicable and measurable approach to promoting from within. This could, of course, supplement external hiring but internals' knowledge about the culture, service standards and product will be invaluable. By building the talent they need, companies can invest in these roles and ensure incumbents are dedicated, knowledgeable employees.

One word of caution: This approach is best suited for companies that have a history of developing talent from within the organization as well as have pools of talent that lend themselves to upward mobility. Building is only a viable primary choice for an organization if the expertise and infrastructure to develop talent already exist.  If this is not the case, then it must first be established, and that has to be factored into the timeline and budget equation.

Under any circumstances, building talent requires time, discipline and investment. The result can be highly effective but it is not be a practical solution for immediate needs or for organizations without a strong track record of building critical talent from within.

Buy

When an organization’s talent need is urgent and ongoing, the most appropriate strategy is typically to acquire – or “buy” – talent from the outside. Examples of "buy" scenarios include: a technology firm expanding their mobile app development workforce, a pharmaceutical company replacing retiring scientists, a healthcare organization seeking experienced RNs to staff a new hospital. In these instances, there is an ongoing need for these roles and there is a sense of urgency due to a high rate of attrition, promotion and churn in these positions. Such a scenario doesn't allow the luxury of time or investment to build internal pipelines of talent.

In addition, the "buy" strategy is a key lever for organizations that have internal candidate pipelines but need to supplement them. So, in our retail example above, the company might not have enough "ready now" store or district managers, so they will need to "buy" them from the competition.

In order to win top talent - particularly for scarce talent in critical roles - the talent acquisition approach requires discipline, alignment, differentiation and investment.

Borrow

The market for borrowing talent has become more robust and is more often able to supply a wide variety of roles. In 2016, contingent workers make up 53 million people, or 34 percent of the American workforce, according to a recent study. This trend is expected to continue as the borrow alternative becomes more attractive for both individuals and employers.

For certain roles, the option of borrowing rather than employing talent can add flexibility worth the extra initial expense. Less critical roles, coupled with cyclical or unpredictable business demands, creates the scenario in which contingent labor is less expensive than the cost of benefits and incentives.

For companies trying to determine which hiring strategy is appropriate for critical roles, there are two instances when borrowing talent is typically the best option:

• When there is a need to temporarily boost capacity or utilize a particular capability.
• When an emerging capability is not sufficiently available in the marketplace to render "buy" a viable strategy (specialty digital roles such as marketing have been examples in recent years).  

Additionally, in some areas, critical skills may be more available via contingent relationships on an ongoing basis instead of full-time, regular employment. Individuals with specialized IT skills may consider free agent contracts over traditional employment arrangements.  In such cases, companies need to adapt their talent tactics to the available labor supply.

The Right Blend

Understanding a company’s critical needs, the availability of talent to satisfy them, and the interplay among alternative choices ultimately drives human capital strategy and structure. The reality is the build/buy/borrow framework provides hiring choices that impact one another at any given time. After all, to “build” talent, it is necessary to have hired potential high performers in the first place. And, talent that was previously borrowed may make sense to eventually buy.

A carefully considered talent strategy allows an organization to plan for and operationalize these choices in order to satisfy talent needs as they arise. Without such a plan, the build, buy and borrow options become simply reactionary tactics.

Want to learn more about building the right human capital strategy for your business? Or read about our Talent Strategy Design services? Contact us; we'd love to help you think through your options.