Human Capital Development: 4 Steps to Make it Work
by Leen Sawalha
According to classical economics, any organization, large or small, needs three types of resources to produce its goods and services; land, capital, and labor.
Labor, or human capital, does not refer to the number of employees you have, but to what they possess in terms of their knowledge, skills, experiences, and commitment invested in the organization.
More inclusively, human capital comprises of the knowledge, education, vocational qualifications, professional certifications, work-related experiences, and even the competencies of your workforce.
Now that we got that out of the way, the big question remains: how do I become a human capital development master?
Step 1: Know your Human Capital’s ROI
Just like any other asset, it is important to know whether or not you are getting a return on your investment (ROI). How do you calculate your human capital’s ROI? Easy! Just use this formula:
“Investment on Human Capital” here refers to the amount of money your organization has put in to develop its human capital; i.e. recruitment and selection, training and development, compensation, etc…
With this formula, the Conference Board of Canada estimated that the median human capital ROI of Canadian organizations was $2.26. However, this figure does vary depending on your industry and organizational strategy, so make sure your figures are comparable to your specific situation.
Step 2: Analyze your Human Capital
Now that you have identified your human capital’s ROI, is it time to figure out how to improve it. But before you start spending money in an attempt to strengthen every aspect of your HR system, it is best to pinpoint where the weakness lies.
The analysis should include at least three parts: an organizational analysis, an operational analysis, and a person analysis.
The operational analysis is what you expect from the operations of the business in terms of output; sales, goods, service, employees’ behavior, etc. The person analysis, on the other hand, is what you actually have at this specific moment. As for the organizational analysis, it identifies the organization’s objectives, strengths, constraints, and limitations.
With the information you have acquired from your operational and person analyses, you will be able to clearly identify the gap in the organization’s performance. From the organizational analysis, you will be able to determine which aspect of the gap requires the most attention, and how it can be resolved effectively and efficiently.
Armed with your analyses and information, you will now be able to attack the issue of developing your human capital.
Step 3: Develop your Human Capital
When trying to develop your human capital, there are at least two things you must ensure: that knowledge is being transferred to your employees, and that your employees are actually motivated to learn them. Without these two components, your time, money, and efforts spent into the development will be in vain.
So how do you go about ensuring these two components? Let’s take it one step at a time:
Knowledge, skills, abilities, and competencies can be learned if they are administered correctly to a specific person. Not all people learn the same way, so you can’t expect to get the same result from everyone if you give them all the same training. Evaluating your trainees’ thinking structure and learning mode will ensure that your training efforts are optimized.
As for motivation, I think we can all agree that the more motivated you are to learn, the more likely is it for you to acquire the information and reflect it in your behavior. For this reason, it is important to assess your trainees’ motivation, and determine what it is that drives them.
The Atman test evaluates individuals on 11 dimensions under 5 headings. These headings include, among others, thinking structure and motivation. With the assessment and evaluation of those dimensions, as well as others, organizations will be ensure their human capital development is optimized.
Step 4: Evaluate your Human Capital’s Development
The most often neglected step yet the most important for stakeholder: Evaluating your human capital’s development. When evaluating any HR initiative, it is important to consider the 5 C’s: Compliance, Customer Satisfaction, Culture Management, Cost Control, and Contribution.
It is crucial to ensure that any and all HR initiatives comply with laws and legislation, including developing your human capital. Make sure that you inform your employees of their rights and obligations, and that you avoid legislative issues, such as discrimination.
The customer here is not the organization’s clients, but the employees who are being subjected to your developmental efforts. Formal or even informal surveys and questionnaires provide constructive feedback for both the organization and its employees.
The importance of culture management rests in the following premise: an organization’s culture affects its employees’ attitudes, which in turn affects their behavior, which then affects their performance and the organization’s overall success. Assess your employees’ attitudes towards the organization’s culture and developmental activities to ensure that effective communication is taking place.
It is pertinent that your human capital development is efficient in terms of costs. Analyze, assess, and evaluate development needs, your organizational strategy, and your employees to capitalize on your expenditures.
Are your developmental activities contributing to your company’s bottom line? Ensure that your human capital development is effective, and that it is directly contributing to your organization’s overall success. Provide your trainees with relevant, motivating, and effective training that can transform into desired behaviors and be reflected in the bottom line.
And now you have it all! Analyze, assess, evaluate, and develop your human capital!HUMAN CAPITAL 7:2
5 Steps to Investing Wisely in Human Capital Development
“Human capital development” has definitely achieved buzzwordstatus. As a phrase, it’s ubiquitous in the entrepreneurship and business-oriented press. You can even study it through a certification program at an Ivy League university.
But what, exactly, is human capital development? More importantly, why is it so important for business success, and how does a small business owner go about actually investing in it the right way? Sure, it might make sound financial sense — and constitute a relative drop in the budget bucket — for a large company. But, does it even make sense for smaller businesses, with smaller budgets that may already be stretched thin?
Use the following five-step program to create your company’s best human capital development strategy and tactics.
1. Understand what human capital development is all about.
First and foremost, let’s get clear on what human capital development is all about. At its simplest level, human capital is a way to quantify the economic value of a specific employee’s set of skills.
Like all forms of capital, human capital is an essential component of your company’s long-term assets. The collective profile of skills for all your employees ideally meets your company’s needs, but more importantly, it also adds to your company’s intrinsic value.
Developing that capital — that is, investing in the further enhancement of those skills in a way that adds to that value — is a smart financial investment in your own company. It’s also a way to increase employee satisfaction and engagement levels. Put simply, when employees feel that management understands and appreciates their value, they’re likelier to stay with the company, further enhancing the company’s value.
A company’s human capital costs can account for a large portion of its overall operating expenses. However, most companies admit that they don’t do enough investing in their employees, through career development opportunities, skill enhancement training, or otherwise.
Investing in your employees is not only a smart way to hold on to valuable, skilled employees who have the drive and passion to grow (and help your business grow, too), but it’s also in a very real sense an investment in your own company. Capital investments bring dividends to the business itself, in terms of increased productivity, higher quality of product and service, and a fatter profit margin. Human capital investments are no different.
2. Help employees keep up with necessary skills.
Human capital development plans often focus primarily on improving employee skill sets or helping them acquire new sets of skills and abilities. This approach makes a great deal of practical sense to small businesses that might be new to investing in their employees. The investment is directly related to the business and results in a direct benefit to the company through greater skills and improved productivity.
You have to ensure that your company’s human capital assets keep up with your company’s needs and the changing landscape of your field or niche. In other words, if technology is changing rapidly in your industry, the profile of your workers’ skill sets must keep up with those changes if your company is to remain competitive.
3. Make life easier for static-skill workers.
Of course, not all workers will benefit equally from skill development opportunities. Many positions require some static form of skill — for example, operating a machine that doesn’t change, or any sort of repetitive work such as sorting or point of sale operations.
For these workers, investing in them as human capital could mean making their lives easier in some way. Look for creative ways the company can help these “static skill” workers reach other types of goals. For example, you could partner with other community organizations or businesses to provide opportunities for these workers to learn new languages, save money, plan and take a trip, or improve their health in some way.
4. Invest in the best supplies, tools and equipment.
Human capital investment doesn’t just mean investing directly in employees. It also means maintaining a harmonious workplace that helps your employees be more productive at their jobs.
As one example, making sure that your workers are given the best office furniture and equipment that your business can afford immediately produces a more positive work environment. Additionally, you should objectively assess each workplace environment for detrimental conditions, such as improper lighting or sound pollution, that can make work unnecessarily unpleasant for your workers and remedy those conditions.
It’s also important to solicit and consider the input from the affected workers. Wherever possible, make the changes that they agree are most important.
5. Empower your human resources professionals to develop new ways to invest in human capital.
Experienced human resources professionals are the best equipped to evaluate not only what your staff needs most but how to prioritize the investments your company makes in your workforce.
Your job is to first communicate clearly to your HR staff that human capital development is a priority for the company’s leadership, and then to ensure that goal is adequately funded. With the right charge and budget, HR can then analyze the various needs and opportunities specific to your business.
HUMAN CAPITAL 7:2