HR leaders today face mounting pressure to deliver more impact—and to do it faster than ever. But what’s holding them back?
Our research, spanning over 960 organizations, reveals common hurdles like execution challenges, skill shortages, and misaligned systems of work. These barriers prevent even the most well-intentioned HR strategies from producing real, tangible results.
Despite increased efforts in HR upskilling and widespread adoption of new tech platforms, many HR functions still fall short of seeing the returns they expect. Why? Because these efforts are often fragmented, reactive, or disconnected from strategic priorities.
HR teams are focusing on the right priorities, but the struggle lies in turning ambition into action. This gap between intent and execution raises a big question: How can HR build the capabilities needed to drive real, measurable impact?
In this article, we explore how HR can take a more integrated, systemic approach to capability building—aligning structure, skills, systems, and strategy to create a future-ready function equipped for lasting success.
The current reality of HR capability building that leaders face
In our AIHR Effectiveness Model, we define execution capability as the structure, skills, and systems that power HR, all aligned to strategy and supported by strong leadership and culture. When these pieces work together, they create real value and drive impact across the organization.
But many HR operating models look great on paper but fall short in practice. In fact, 45% of HR leaders admit that limited execution capacity is one of their biggest roadblocks to delivering results. This friction often stems from structural inefficiencies that undermine even the best strategies.
And it doesn’t stop there. Outdated technology and fragmented data systems add another layer of frustration, with 42% of HR leaders citing these issues as barriers to evidence-based decision-making.
To top it off, a lack of digital and analytical skills within HR teams creates further challenges. Our research, which includes insights from 25,000 HR professionals, shows that data literacy and digital agility are among the weakest competence areas. This means that even with access to cutting-edge tools and data, many HR professionals struggle to leverage them to drive improvements fully.
So, the big question for HR leaders is this: how do we close these gaps and build the capabilities needed to deliver real results?
Why traditional HR capability-building approaches are missing the mark
When HR teams struggle to deliver, leaders often default to one of three common solutions. While these strategies have their merits, they rarely address the deeper issues holding HR back. Here’s why:
1. Changing the operating model
Changing the HR operating model to better align roles and responsibilities with strategic goals seems like a logical step. But without tackling the underlying skills and systems needed to support the new model, the impact often falls short.
2. Investing in more technology
Investing in expensive platforms and multi-year transformation programs can feel like the answer to execution challenges. But without reworking workflows or properly upskilling teams, new tech often ends up underutilized, leaving teams frustrated instead of empowered.
3. Upskilling initiatives
Filling skills gaps is a common priority, and for good reason. But upskilling efforts can miss the mark if they’re reactive, unfocused, or lack alignment with a clear mandate, delivery model, and access to the right tools.
Each of these approaches has value, but the problem is that they’re often pursued in isolation, fixing symptoms rather than addressing root causes.
HR leaders truly need a systemic approach that ties together strategy, structure, systems, and skills into a seamless, capability-building framework. That’s the key to creating real, sustainable impact in HR.
How to build HR capabilities that drive real impact
Building impactful HR capabilities requires a clear, actionable framework. That’s why we’ve developed a simple, four-step process to help global organizations transform their HR function in an integrated, strategic, and results-driven way.
Step 1: Clarify the strategy
A strong HR strategy starts with clarity. It’s about more than tossing around buzzwords like “agility” or “efficiency.” To truly align with business goals, you need to dig deeper and define what those terms mean in practice. Too often, strategies stay vague, leaving HR with no real direction or shared understanding across leadership.
To cut through the noise, we ask three critical questions:
- What do stakeholders expect from HR?
- What does “impact” mean in the HR context?
- What strategic choices are we making?
These questions help identify what shareholders, leaders, and employees need from HR and create a clear vision of success. Even more importantly, they force organizations to make tough but necessary decisions about what HR will prioritize—and what it won’t. This focused clarity sets the stage for building HR capabilities that truly move the needle.
Step 2: Define and align HR’s mandate
Once the strategy is clear, the next step is defining HR’s role—or, as we call it, the HR mandate. This step is often overlooked, but it’s critical. Many HR teams assume they already have a “strategic partner” mandate, but in reality, HR’s role can vary wildly depending on the organization’s history and culture.
We’ve identified three common HR mandates:
- Governance Guardian: Focused on risk mitigation, compliance, and consistent people practices.
- Service Provider: Optimizes efficiency and effectiveness, ensuring a reliable and engaging employee experience.
- Strategic Player: Partners with the business to proactively shape the organization’s future and create stakeholder value.
None of these roles is better than the others—they’re just different. The right mandate depends entirely on your organization’s needs, size, and strategy. Some large companies thrive with a service provider mandate, while smaller, talent-driven businesses excel with a strategic player approach. Many HR teams even balance multiple mandates at once.
The key is alignment. When HR’s role is clearly defined and matches the organization’s goals, it paves the way for meaningful contributions and long-term impact. By clarifying strategy and defining the HR mandate, you set the foundation for effective capability-building. Without this alignment, there’s a risk of identifying the wrong capabilities or making investments in HR that are misaligned with business needs and expectations.
Lessons from our clients
We partnered with a business that had set an ambitious HR strategy—focusing on business partnering, enhancing employee experience, and prioritizing workforce planning. However, HR was stuck in a traditional governance role. Reporting to the Chief Administrative Officer, the HR team operated within an outdated model, lacking the tools and capabilities to drive real transformation.
The technology in place was mostly transactional, offering little to support strategic initiatives. Even more telling, when we engaged with the business, it was clear there was little appetite for HR to step into a strategic role. The focus was on minimizing risks, ensuring operational efficiency, and staying compliant—far from driving organizational transformation.
Step 3: Establish the HR capability foundations
With the strategy and mandate in place, it’s time to define the HR capabilities that will bring it to life. Think of capabilities as the three key pillars that support your HR function:
- Structures of Work: The HR operating model and its design choices, such as centralized vs. decentralized approaches.
- Skills: The competencies required to execute the strategy effectively within the chosen structure.
- Systems of Work: The supporting infrastructure, including processes, data, governance mechanisms, and technologies.
To guide this process, we use a capability map assessment. This tool helps HR leaders zero in on the most critical capabilities to achieve their strategic goals. A common misstep we see leaders making is in attempting to excel at everything. It’s unrealistic, wastes time, and spreads resources too thin. Instead, we encourage leaders to prioritize capabilities into three levels:
- Essential: Critical to running the HR function. These should be robust, cost-effective, and risk-resilient.
- Competitive: Capabilities where being on par with peers is sufficient.
- Differentiators: Capabilities where the organization aims to lead and set itself apart from others in similar markets.
This encourages strategic trade-offs and sharpens focus. For instance, if recruitment is essential but not a differentiator, the organization may choose a functional ATS and rely on standard processes. However, if growth is driven by M&A activity, organizational design and change management capabilities may be flagged as differentiators, warranting deeper investment in skills, tools, and data.
Lessons from our clients
We recently partnered with a hospitality client to build a strong foundation for their HR capabilities. By identifying employer branding and value proposition as key differentiators, they boosted brand visibility, attracted top talent, and internal capability investments.
When it came to HRIS, they took a practical approach. Instead of overcomplicating things, they chose a straightforward solution supported by IT, avoiding the need to build an in-house HR tech team.
An example of their capability map is shown below:
Step 4: Assess current state and develop an HR capability-building plan
Now that you’ve identified the key capabilities, it’s time to closely examine where you stand. Assess your current structures, skills, and systems. Are your operating models helping or holding you back? Where are the skill gaps? Do you have the right tools, data, and processes in place to bring these capabilities to life?
With this insight, you can create a customized HR capability-building plan that fits your organization’s unique needs. Focus on actions that address structure, skills, and systems, while ensuring everything aligns with your HR operating model. Remember, it’s not about blindly following best practices—it’s about building the right capabilities in the right areas to succeed in your context.
Lessons from our clients
We partnered with a pre-owned car franchise business to support their HR team in identifying capability gaps within their current HR strategy and operating model. We uncovered a critical shortfall through interviews and surveys: limited digital and data capabilities across the HR function.
To address this, we implemented a focused, three-pronged approach. First, they optimized their ERP investment by ensuring relevant data was accessible to all key stakeholders. Second, we launched a targeted upskilling initiative to build data and analytics capabilities within the HR team, enabling them to better support business decision-making. Finally, we formalized the ways of working between HR business partners and Centres of Excellence (CoEs), establishing consistent data flows and fostering deeper collaboration.
Getting started in your organization
We help our clients to elevate to implement the capability-building framework in three phases:
Phase 1: Analysis – Understanding the landscape
The first step is all about discovery. We review your strategy documents, internal reports, and communications to uncover key themes and alignments. Through interviews with HR and business leaders, and HR satisfaction surveys, we identify how your HR function is perceived across the organization.
We also map out your current HR operating model and structure to pinpoint where your capabilities lie, how work flows, and where bottlenecks slow you down. At the same time, we’ll evaluate your existing KPIs and define what “great” looks like for your unique goals.
This phase isn’t about auditing—it’s about understanding your organization from the inside out and identifying the areas that will drive the most improvement.
Phase 2: Design – Building for capability and impact
Once the analysis is complete, we reflect on how this compares to HR’s strategy, mandate, and required capabilities. Comparing these responses with the analysis’s findings reveals the gaps that must be addressed.
This phase also prioritizes which capabilities to build first and how best to approach development. The plan should be holistic, integrating structures of work, critical skills, and enabling systems.
Competency models like our T-shaped HR competency model provide a solid foundation to ensure development efforts are aligned with strategic goals. The outcome of this phase is a practical roadmap that outlines clear actions and secures the necessary investment, whether in technology, talent, learning, or process and data improvements.
Phase 3: Implementation – Moving into action
Success depends on structured planning and visible leadership that enables execution. We help you start by crafting a communication and change strategy that builds buy-in and momentum and manages the expectations of both the business and HR team on the planned changes and why they are important.
Organizing the work into dedicated streams, each led by a sponsoring HR leader helps maintain focus and accountability. Most importantly, the HR leadership team must act as a united sponsor of the roadmap, championing it visibly and consistently over time.
How we can help you build HR capabilities in your team
At AIHR, we equip HR teams with the skills and frameworks to drive business value. We work with our clients as thought partners on their broader HR strategy, offering strategic advisory support to help connect the dots across key HR priorities. Whether through capability building or strategic collaboration, we focus on enabling HR to drive lasting impact from the inside out.
