Labor planning and allocation are critical success factors for hospitals in today’s low margin, competitive healthcare environment. This research investigated the design and evaluation of an innovative labor planning and allocation system co-created with a practitioner team responsible for nursing labor management across departments in multiple hospitals within a North American hospital system. The research found a unique means to extend Design Science Research theory and practice using a Systems Theory approach to the design, build and evaluation of innovative labor allocation information and management systems within the existing hospital systems. The “system of systems” approach identified conflicting structures of management processes that prevented system balancing feedback loops from operating efficiently. An elaborated Action Design Research (eADR) method used a guided, emergent approach to redesign the structure, roles, and tasks of labor planning and allocation within this system of systems framework. The instantiated innovative nursing labor-management model was shown to benefit from its theory-ingrained approach to deliver a significantly improved labor allocation outcome for each level of the system.