New Human Capability Framework Offers Groundbreaking Approach to Creating Value Through HR
Ross School of Business management expert Dave Ulrich and his colleagues have developed a game-changing approach to human resources that focuses on achieving results for all stakeholders of an organization.
The Human Capability framework grew out of big data projects the last few years, the latest involving Amazon Web Services. The framework combines four key pathways — talent, leadership, organization, and HR — with 37 associated initiatives.
Together, this represents a potentially transformational way to think about HR issues, Ulrich explained. Business people can link the pathways to outcomes for their stakeholders, while HR professionals can examine performance in each pathway and offer ideas for improvement.
Ulrich — the Rensis Likert Collegiate Professor of Business Administration at Michigan Ross and a widely respected HR expert — recently answered a few questions about the framework, its development, and its implications.
In basic terms, what do we mean when we talk about “Human Capability”?
Ulrich: Nearly everyone believes that people are an organization’s most important asset, and numerous practices exist to better manage people and organizations. Often these practices are isolated and independent initiatives based on intuition rather than an integrated solution based on relevant research.
My doctoral dissertation (decades ago) was on numerical taxonomy, or the discipline of turning complex and seemingly random ideas into simple and relevant patterns. Think of a restaurant menu that organizes the variety of food items into categories (appetizer, salads, soups, main course, dessert, drinks) so that decisions can be made. Throughout my career, I have tried to discover patterns to think about and act on how to create talent, leadership, organization, and human resource departments that create value for stakeholders.
Human Capability builds on this work to integrate talent + leadership + organization + HR initiatives into a simple framework that leads to a host of actions.
- Human/talent refers to human capital, employees, workforce, people, and competence.
- Capability/organization refers to the team, workplace, and culture.
- Leadership bridges talent and organization and refers to individual leaders and to collective leadership capability.
- Human resources refers to the HR department, practices, and people.
Like the restaurant menu shaping a dinner order, the four food groups leading to many diets, or the big five personality traits spawning a variety of psychological tests, these four pathways of human capability and thirty-seven initiatives become a foundational way to organize, think about, and invest in people and organization.
You’ve been working for some time on linking human capability to results for businesses, customers, and other stakeholders. Why is this important?
Ulrich: An organization comprises many stakeholders, both inside and out. Human capability conversations with each stakeholder help that stakeholder accomplish their goals (see figure). Instead of random people and organization initiatives, the Human Capability framework offers a rigorous way for stakeholders to accomplish their goals.
What was the nature of the research project you undertook with Amazon Web Services?
Ulrich: Because of the relevance of people and organization to investors, in 2020 the Securities and Exchange Commission required 7,000 firms to report their “human capital,” with little guidance on what to report. With Amazon’s AI/machine learning technology we were able to score all 7,000 organization disclosures on the four pathways of human capability. We were then able to show the impact of these human capability scores for 5,700 organizations on employee productivity, cash flow, investor confidence in future earnings, and community reputation.
Based on this analysis, each organization can now better prioritize where to invest in human capability to deliver stakeholder value and what to disclose to build confidence in the future. See www.g3humancapability.com for the ideas, tools, and actions based on this work.
What were some of the key results from the research?
Ulrich: Studying people and organization practices has a long and rich tradition at the University of Michigan — the Institute for Social Research founded by Rensis Likert has been a key contributor to this movement. The integrated Human Capability framework offers a holistic playbook rather than piecemeal actions for human capability investments within an organization.
The machine-learning methodology for testing human capability advances traditional survey work by examining what organizations report in public or private documents. Instead of relying on perceptions of people practices, this methodology examines what is reported or disclosed and connects those results to stakeholder value.
Our findings using this methodology are remarkable and have about double the impact of previous studies using survey methodology. For these 5,760 organizations, Human Capability scores explain:
- 44 percent of employee productivity
- 26 percent of cash flow (EBITDA)
- 25 percent of market value over intrinsic value or intangibles (Tobin’s Q)
- 36 percent and 48 percent of two social responsibility indicators
Why are these results significant?
Ulrich: With the human capability framework and the AI/machine learning methodology, stakeholders can now access human capability information to make better decisions. Investors can better evaluate and compare the human capabilities of organizations they might invest in; boards of directors can better oversee how to make financial and strategic goals happen; senior executives can better implement their strategic transformations; employees can make better choices about where to work; and HR leaders can better design and deliver HR practices with impact.
What are the broader implications of this work for the HR profession?
Ulrich: This work changes the ways to think about “HR.” HR is not about HR practices, but how to help an organization succeed in the marketplace with investors, customers, and communities. If an organization does not succeed in the marketplace, there is no workplace. The human capability framework, research, targeted actions, and intentional disclosures informs how business and HR leaders care for and build their people and organizations for sustainable success.
Deploying human capability to deliver stakeholder value shapes the No. 1-ranked Advanced HR Executive Program offered by Ross Executive Education, where senior HR leaders learn the playbook, assess their efforts, and prepare to make improvements.