​We have proven that companies with strong relationships with their people – their Human Capital – perform better than their peers and are rewarded with higher equity returns. But how does this dynamic shift with the introduction of Artificial Intelligence (AI)?

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Our thesis is simple: As artificial intelligence automates more work, the companies that invested most heavily in their people will outperform those that simply invested in the technology. 

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• Soft Factors Drive Hard Returns.  In 2017 Irrational Capital created the Human Capital Factor® (HCF) with data drawn as far back as the 2005 annual data collection cycle.  HCF is a quantitative score built from employee sentiment across dozens of elements from our  proprietary data using rigouts, scientific methods of research. The HCF score reflects how companies manage human capital, creating a link between the workforce and potential future equity/enterprise value.   Simply put, Irrational Capital has been able to quantify the connection between how you treat your people and future enterprise value as measured by stock performance.

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• What We’ve Learned From COVID-19. Our data shows that companies that entered COVID-19 with high Human Capital Factor (HCF) scores fared better during the pandemic than their peers. Similarly, we predict that over the next several years, those with higher Human Capital Factor scores will be more successful in adoption and consequently, more financially successful. 

 

Why? Because companies that invest in reskilling, engagement, emotional connection, and perhaps most importantly, maintain trust during transitions and uncertainty are best positioned to succeed. We examined which companies entered the pandemic with high HCF scores and which entered with low scores, then tracked performance through the crisis and recovery. The results were clear. High-HCF companies outperformed their peers materially, measurably, consistently. Their stock prices held up better during the initial shock and recovered more quickly afterward.

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Artificial intelligence has been the engine behind the growth in companies’ ability to innovate. Yet, if AI is the engine, trust has emerged as the North Star. Employees are happy to lean in and contribute if they believe in the direction of the company’s aspirations and understand the plans for arriving at that destination. In organizations with weak Human Capital, where trust is low and employees feel expendable, AI adoption becomes an exercise in self-preservation. 

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Conversely, in organizations where psychological safety is high, employees are more inclined to innovate, take calculated risks, become more productive, and feel they have the security to do so. This creates a virtuous cycle: trust enables experimentation, experimentation accelerates learning and learning drives better AI implementation.

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The irony is that AI was anticipated to make companies less dependent on people. Instead, it may reveal precisely how much success depends on them. Almost everything begins with people. AI does not change that fundamental truth. It merely makes it more evident.

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