Human Capability and Stakeholder Value: Updating the Organization Guidance System (OGS)

by Dave Ulrich, Partner, The RBL Group, Rensis Likert Professor, Ross School of Business, University of Michigan ([email protected] ) and Harrison James , Consultant, The RBL Group ([email protected] )

Imagine if:

• You came into a great deal of money and you are inundated with many investment options. How do you decide where to invest?
• You started a retail company and want to open 50 stores. How do you go forward with stores? Do you open one in each of the 50 U.S. states or most of the stores in one state (or the equivalent distribution in any country)?
• As a leader, you have many people wanting to spend time with you? How do you decide whom to spend time with?

In these and many other settings, a major challenge is figuring out how to focus attention (time, money, energy). Knowing how to prioritize enables:

• You to create your investment portfolio based on your personal risk/return criteria.
• Companies to gain market presence by concentrating resources (many stores in fewer states).
• Leaders to spend time with the people with whom they can have the most impact.

Human Capability Classification to Enable Prioritization

Also in the HR space, many types of HR initiatives require prioritization. Articles, books, LinkedIn posts, podcasts, research reports, TED (and other) talks, best practice communities, and other settings provide an abundance of “latest” HR tools. For example, at the World HR Congress (WHRC) in May 2024, 29 sessions covered emerging topics in HR, each with insights (ideas, research, and solutions) that might feel both invigorating and overwhelming.

A first prioritization step is to organize these 29 topics (and we could identify more) into a framework, or a taxonomy , for investment. We have proposed and evaluated a human capability taxonomy with four dimensions: talent, organization, leadership, and HR function. See how the 29 WHRC sessions fall into these four pathways (figure 2). Instead of proposing 29 options, HR value is created by upgrading talent, leadership, organization, and HR function in each of these ways.

Even with this taxonomy and a commitment from business leaders that human capability creates stakeholder value, this question persists: “Where should we invest to get the highest impact?” The answer to this question often comes from:

• Personal experience: I/we have done this before and it worked.
• Popular press “best practice”: Company X that we admire has done this and it worked for them.
• Respected colleague: I spoke to a colleague (e.g., board member) and they did this successfully.
• Consulting firm advice: A consulting firm recommended we invest in this practice.
• Etc.

While each of these sources of information may inform human capability investments, they are based on experience, relationship, and intuition more than evidence or data.

Analytics to Improve Prioritization: Evolving Organization Guidance System

Decisions, whether personal (selecting an investment portfolio, buying a car) or business related (creating a product portfolio, determining markets, making strategic decisions), improve by relying on extensive data.?

In our work on human capability, we have seen four levels of analytics to provide data to improve decision making (see figure 3).

To move human capability investments to impact or guidance (level 4),? we initiated the Organization Guidance System (OGS) four years ago to help organizations prioritize the human capability investments that will have the greatest impact on targeted business outcomes (financial, customer, employee, strategic, and social citizenship). As an information tool, OGS monitors and measures the impact of human capability investments on business results to provide ongoing, high-impact guidance.

We shared the initial overall (global) results from our OGS research in 2021.

• Talent: https://www.dhirubhai.net/pulse/how-increase-impact-your-talent-initiatives-dave-ulrich/
• Organization: https://www.dhirubhai.net/pulse/knowing-which-organization-capabilities-make-dave-ulrich/
• Leadership: https://www.dhirubhai.net/pulse/now-time-offer-guidance-how-improve-leadership-dave-ulrich/
• Human resource function: https://www.dhirubhai.net/pulse/how-get-results-from-your-hr-transformation-dave-ulrich

We have also helped many organizations receive specific guidance for where to invest to deliver value.

In the last four years, we have upgraded this research in ways that will make it even more relevant and impactful.

1.???? Use “organization” as the unit of analysis rather than “individual.” The global results we have previously reported were based on individuals completing the OGS survey. Some organizations had one respondent to the survey; other companies had dozens. While these key informants (single respondent) may have well-intended views of their organization, the human capability solutions are mostly at an organization level. So we have now aggregated scores by organization to not rely on a single respondent to fully represent their organization. While our sample size has fallen since the last results, the overall relevance has increased.

2.??? Add human capability initiatives. We started with 36 initiatives among the four human capability pathways. We have added “encouraging diversity, equity, and inclusion” to the talent pathway and “using digital/technology” to the HR function pathway. We know additional significant initiatives will emerge.?

3.??? Propose a more robust prioritization formula to determine the best opportunities to prioritize within a specific organization. Instead of just relying on personal judgement, this formula multiplies status impact differentiation (see figure 4).

4.???? Tailor results for a specific organization. We have been able to offer many organizations specific guidance for each of the four pathways. For example, consider these two companies guidance report on the talent pathway? (figure 5).

Each column represents a result (employee, strategy, customer, finance, social citizenship), and we did a regression (actually variance decomposition to mitigate for multicollinearity) of the ten talent initiatives to show their impact on each column result. Colors represent the relative impact for each column result: green (high), yellow (medium), and red (low). These “heat maps” show that some general high-level similarities exist for Company A and B (e.g., each column has relatively the same impact as shown by the color scheme).? However, the two companies have some differences, as seen by row. Reading by row, Company A will have higher human capability impact by investing in “managing employee performance” and Company B by “retaining the best employees” and “managing departing employees.”These heat map results may help each company allocate their talent initiative investments to better deliver the stakeholder value.

5.???Focus even more on delivering stakeholder value . We have suggested that the “human” in “human resources” includes employees but also executives who care about strategy, boards who oversee business operations, customers who want to meet their goals, investors who want returns, and citizens who desire a positive community setting. This stakeholder logic helps focus specific actions for the “humans” in each stakeholder group.

Given the impact of and the requirement to prioritize through analytics to find the right opportunity, we are going to report the latest OGS global data in each of the four pathways over the next four weeks.

These weekly (Tuesday) posts will identify the global guidance as heat maps on where to prioritize human capability investments. We will share tools and tips for those initiatives that have a high impact on stakeholder outcomes. As noted that while we recognize that prioritization varies by company, we want to demonstrate the importance of guidance to discover how human capability delivers stakeholder value. For more information on OGS, see https://www.rbl.net/services/organization-guidance-system .

We believe that analytics-based human capability prioritization for stakeholder value plays a significant role in the evolving business and HR agenda .

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Dave Ulrich?is the Rensis Likert Professor at the Ross School of Business, University of Michigan, and a partner at The RBL Group , a consulting firm focused on helping organizations and leaders deliver value.