How Much Should You Invest in Your Human Capital Development
During the last few years, we’ve seen the emergence of many new technologies, demographic shifts and globalization. New conditions on the market pushed many companies to reconsider their approach to skills development. It pushed them to look for new methods of investing in human capital.
Most businesses are based on important resources such as capital, land and labor. Land is a natural resource which is necessary for any kind of production, while labor allows a company to turn resources into a product. Both these resources are purchased for money, which is capital.
Human Capital and Its Importance
Human capital reflects the economic value of employees, which is determined by, and depends on, their skills and knowledge. It’s no secret that human capital makes the biggest contribution to a company’s productivity. The better skills and knowledge, the better the output. According to statistics, the dynamics of productivity declines every year. Although the overall productivity rate in the U.S. grew up to 2.5% from 1995 to 2010, during the next five years, it dropped to 0.4%. Now, most economists understand that productivity is crucial for economic growth.
Even though many companies still consider financial capital as the most important resource for investment, the truth is that human capital directly impacts economic value. The reason being it determines the quality of labor, as it includes knowledge, social attributes and creativity. At the same time, such an asset is intangible, which makes it a difficult value to measure. However, more than 80% of the value of modern companies consists of such intangible assets as people, intellectual property and brand value. Almost 65% of the wealth in developed countries is human capital, so every business needs to find an effective strategy for investment.
Benefits of Investing in Human Capital
The first step of effective talent management is selecting the best candidates. However, even the best employees won’t bring the desired result if your company doesn’t unleash their full potential. The staff should learn and grow professionally. First, it protects your workforce from any unexpected changes in the industry. Secondly, it allows you to implement the latest trends so that the company won’t lag in the current digital age. By improving human labor, you create a competitive advantage, offering better products and services than other companies. Moreover, proper training and constant improvement of employees’ technical skills increases the efficiency of production.
There is a big difference between unskilled and skilled labor. Not only are skilled employees more effective, but they also accomplish the necessary tasks much quicker. By reducing the amount of unskilled workers, you also reduce wasted resources by increasing the overall efficiency of your workforce.
For example, College Writers is a company that pays attention to training employees, which means investing a lot in human capital. George Lynch, a team manager at College Writers, underlines: “This is especially important now when the development of technologies creates more complex jobs so employers face difficulties with connecting workers’ skills and outcomes. Given that so many people switch jobs frequently, it’s getting hard to evaluate their previous performance accurately, in fact, the only thing we can do is ensure their professional growth in our company.”
How to Understand What Percentage of Your Resources to Invest in Human Capital?
- Most companies spend, on average, 70% of their operational costs on human capital. At the same time, many of those same companies don’t have an effective strategy for employee development. More than 40% of companies from various industries rarely, if ever, provide career development and career planning. If your company is one of them, you need to reconsider your managing approach.
- Some companies calculate their investment in human capital using the traditional formula which includes compensation and benefits. We suggest not sticking to such a limited view. First, benefits and compensation don’t reflect all the costs of the increased productivity. This scheme also doesn’t consider all the aspects of the workforce that have a value.
- You need to think of each human capital program and solution separately to determine whether they deliver considerable ROI and add value. This approach will also help you find the best use of your budget. Implementation of any training program requires you to make decisions based only on strong analysis.
- You need to define what certifications or skills are most important for your company. Focus on things that increase your value and make customers’ experience more diverse. Don’t be limited to your industry only. For example, accountants, insurance brokers, estate planning attorneys and financial planners often visit the same conferences and take the same training courses.
- Look at the latest business trends and think of whether you can incorporate them into your investment strategy. Many work-life programs help companies improve leadership and build a more trustful environment. Employees must be able to effectively manage their personal goals along with their responsibilities at work.
What Does All This Mean for You?
Investing in human capital development is of key importance for any business. New technologies and the ever-changing conditions of the market introduce new challenges and require employers to pay more attention to the professional growth of their employees. More importantly, human capital has a direct impact on the productivity of the company and the quality of service. Every company needs to focus on the development of human capital, but the implementation of new educational and training programs must be based on an accurate analysis.
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