Dave Ulrich is a household name in HR circles. Back in 1995, he recognized that HR leaders could use the nascent commercial internet to transform their role from recordkeepers and enforcers of corporate policies into something far more strategic: developers of human capital. His work, which became widely known as the Ulrich Model, helped establish talent, culture, and other areas within HR’s bailiwick as central to a company’s’ strategic success, and elevated HR professionals from departmental administrators to important business partners.
Now, Ulrich says AI is ushering in a human-capability revolution. Rather than focus on recruiting, developing, and retaining the right mix of people for today’s jobs, HR’s role will shift to something even more strategic: making sure the workforce, both individuals and as a whole, is always developing the skills, knowledge, and abilities to learn and adapt to a faster-changing world. By cultivating the capabilities that align with a company’s evolving business strategy, HR can have a more direct impact on its performance.
This shift will require a broader, more integrated definition of HR that Ulrich calls “talent + leadership + organization + HR function.” By properly deploying AI, companies will be able to manage those four key aspects of HR as an integrated whole, leading to far more direct and measurable business benefits.
By using such a human-capability framework, companies can replace the usual smorgasbord of disconnected programs with an integrated HR strategy that has a significant impact across the enterprise. Whether it’s upskilling employees, training executives in AI, or streamlining organizations to encourage more collaboration, the results will be felt by the stakeholders who matter most, such as customers and investors.
Someday, Ulrich has suggested, investors will be able to compare companies by their human-capability metrics, just as they look at financial data, brand rankings, or Net Promoter Scores today.
In a broad-ranging conversation, Ulrich, a longtime professor at the University of Michigan's Ross School of Business and a partner at the consulting firm RBL Group, explains the shift.
HR has gone through three major evolutions. First, there was the personnel era, when HR professionals managed administrative processes, such as hiring and payroll.
That gave way to the human resources era. Rather than just operational excellence, HR departments were expected to develop functional excellence in staffing, employee training, and other areas.
Then came the shift to human capital, when HR departments took a lead role in developing the talent and workforce needed to deliver on the company strategy.
Administration, HR services, and developing human capital must still be done and done well. But by investing in human capability, HR leaders will have a bigger role in creating value for all stakeholders. This stage of HR’s evolution is about how HR works with other functions to create value.
Yes. They’ll need more of an outside-in mindset. When we ask HR professionals who their “customers” are, they often say employees. That’s true. But going forward, HR will also need to think of the company’s actual customers as their customers as well.
An outside-in focus means that HR delivers value to stakeholders outside the company, including customers, investors, and communities. Only focusing on what’s happening inside the company is like looking at yourself in a mirror. HR leaders need to replace the mirror with a window.
For example, HR needs to make the company the employer of choice for the people its customers want you to employ. It’s about hiring, training, and compensating people so that the customer gets the benefit.
That could even mean involving key customers and investors in developing your hiring, training, and compensation practices. It’s having the values and culture inside a company that creates value to customers and investors outside.
AI will play a role in helping HR deliver stakeholder value through human capability. At a recent conference I attended, HR professionals and leading academics who study HR said they believed that the field is only about 20% to 25% up the S-curve on using AI to create value.
Today, artificial intelligence is mostly used by HR organizations to drive the efficiency of operations and to collect and democratize information so it’s available to all. Going forward, GenAI will be used not only for that, but to leverage that information to deliver real stockholder value.
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