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Fortunately, more and more employers are finally beginning to understand that investing in their human capital is essential for retaining top talent, developing an internal talent pipeline, and overall business success.
So if you are unsure if investing in your human capital is worth it, the seven points we discuss here might help you make the right decision. But first, let’s start with the basics.
What Is Human Capital?
Human capital is the economic value of your team’s skill and experience. It includes assets like training, intelligence, education, health, skills, and employee values such as punctuality and loyalty.
While this intangible asset can’t be listed on the company’s balance sheet, there are several ways businesses invest in human capital, including:
- training
- strategic hiring
- software
- incentives
The human capital concept advocates that not all employees are equal. However, just as a commercial building access control system enhances security, investing in human capital enhances the security of a company’s competitive advantage by equipping employees with up-to-date skills, tools, knowledge, and expertise.
Benefits of Human Capital Investment
Correct human capital investments can produce unparalleled ROI well in excess of the associated costs. And there are so many additional advantages. Here are the top seven such benefits:
1. Improved Employee Retention
22% of employees leave their companies due to a lack of career development opportunities. But, with ample investment in employee welfare, you can present yourself as a business that cares deeply for its workforce.
2. Employee Related Costs
Along with higher retention (that directly translates to decreased turnover), investment in human capital will ensure even reduced overall employee costs with low absenteeism, higher productivity, and more.
3. Accurate Workforce Data Tracking
Companies with good human capital investment strategies need to be better stewards of their workforce management data. This data, in turn, enables businesses to identify the ideal areas that need investment.
The result — better workforce data tracking coupled with numerous benefits for your businesses’ employee management flow.
4. Building Future Leadership
The right investment in your human capital highlights the employees who consistently go the extra mile. Identifying these go-getters and investing in their upskilling will create future leaders who will ultimately grow your company.
5. Improved Client Management
Clients can tell if an employee is engaged or not. Especially in customer-facing businesses, unhappy employees can put your company in a bad light. This is further exaggerated when the absence of investment in human capital is already leading to high turnover rates, resulting in miscommunication and delays.
Therefore, companies must invest in creating a work environment where employees feel supported for better client management and customer satisfaction.
6. Training Your Team for the Right Skills
Every company has skill gaps that employees aren’t necessarily capable of filling. However, the correct human capital investment enables you to train your workers in the required areas and hone your team into the crew needed to ensure your business’s success.
7. Better Communication
Investing in your human capital not only improves your workforce but also leads to better communication within the organization. This can be partly achieved by hiring individuals who promote efficient exchange of information and ensure everyone is working towards the company’s objectives and goals.
Calculating the ROI
While calculating the direct ROI of a well-being program, for example, on the team’s productivity, might be challenging, measuring the overall ROI of human capital is doable. You can leverage the Human Capital ROI (HCROI) metric to understand the value workers provide as a group and as individuals.
The key is to establish clear goals and milestones. So start by defining a baseline measurement, experiment, and see what’s working and what’s not.
To further maximize the impact of investment, communicating its value to stakeholders is crucial. One great route to that is an extensive executive summary. So, train your HR team on how to write an executive summary that emphasizes the significance and expected ROI of the human capital investment.
Bottom Line
Businesses that invest in their human capital and recognize their workforce as economic value-creators reportedly boost their productivity, performance, and growth. Creating a culture of happy, engaged, and skilled employees is well worth the effort.
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