Introduction

While most investors would agree that AI presents the opportunity of a lifetime, the journey will vary greatly from one organization to the next despite having access to the same technology. Too many of these organizations view AI as simply a replacement strategy versus an opportunity to redesign work around uniquely human capabilities. The most valuable companies of the next decade will not be those that use AI to eliminate human workers… it will be those that use AI to help humans reach their full potential.

Unfortunately, that’s not the way things have started. Regardless of whether it is true, companies have been laying off thousands of employees while pointing the finger at AI and automation as the culprit. There is no shortage of headlines to prove this point, with behemoths like Oracle, Meta and many others sacrificing their workforce on the altar of AI.

Standard Chartered CEO Bill Winters was heavily criticized following his recent framing of AI job replacement, as the expectation is that big banks will cut thousands of operational and support roles in the next few years. When speaking about their plan to eliminate around 15% of the bank’s support staff, Winters said, “It’s not cost cutting; it’s replacing in some cases lower-value human capital with the financial capital and the investment capital we’re putting in.” Business schools across the planet no doubt celebrated Winters’ statement as a wonderful example of what not to say when leading more than 80,000 employees.

Rethinking Labels

Labeling corporate employees as “lower-value human capital” exposed the stark, spreadsheet-driven reality of how many financially minded executives view the upcoming transition of work. But there is a much more durable value creation model available for those organizations who recognize the potential in their people.

Gartner, a global research and advisory firm, calls these “breakaway companies.” These are organizations that will pull away from their competitors by generating outsized returns from AI. The way they approach it is what differentiates them from those that will only experience incremental success.  While Gartner highlights a variety of ways these organizations operate differently, there are three that stand out:

• Instead of investing solely in AI technologies that automate administrative tasks that cut costs, they allocate the majority of their spend toward creating more value for the organization. This takes the form of identifying innovative new revenue streams, testing alternative business models, and building compelling products that create scalable success.
• From a people perspective, they democratize digital talent by encouraging all employees to proactively create technology-enabled solutions regardless of department or discipline. They recognize that digital literacy is a requirement for all roles, and is a skill set that needs to be cultivated programmatically across the enterprise.
• When it comes to governance, rather than viewing it as a risk-mitigation tool only, these breakaway companies focus on frameworks that accelerate safe experimentation and adoption. Speed is once again the name of the game, and good governance can actually improve velocity when done right.

In addition to the above, organizations that decide to focus on work redesign over labor substitution would be wise to consider a new way of evaluating their workforce. If human capital is simultaneously an organization’s greatest asset, largest expense, source of workforce productivity, link to stock market value gains, and source of intangible value creation, why are more companies not more aggressively measuring and managing this critical element of success?  It is time to deploy the Human Capital Financial Statement.

Think of it as a financial statement for your workforce. It provides a practical way to understand workforce cost, productivity, turnover, and talent flow, so human capital becomes part of the investment thesis, not an afterthought. It also creates a standardized workforce operating model, allowing companies to benchmark human capital performance across the enterprise and identify where intervention will drive the most value. And for those organizations considering acquisitions, it acts as a diligence tool, helping uncover hidden workforce risks, cost inefficiencies, and post-deal value creation opportunities before capital is deployed.

The New Approach

Human Capital Financial Statements represent an opportunity to fundamentally change the way organizations make workforce-related decisions. They provide greater transparency into knowledge capital, a method to value this capital, and the ability to make improved investment decisions resulting in long-term value creation.

AI presents investment teams with a choice. Instead of following the herd and looking for opportunities to remove labor hours, try creating human capacity and shift the focus from cost reduction to capability creation. This human capacity yield of what can be gained can include time spent on innovation, cross-functional collaborating and higher value work. The companies that win won’t be the ones that replace the most people with AI – they will be the ones that free the most people up to do what only humans can do.