Building a motivated and performance-driven team has been an ongoing challenge for businesses for centuries. Many senior leaders understand the importance of employee contribution toward the success of their organizations. However, only a few have uncovered the secret to unlocking their true potential.
Today, a human-capital approach has transformed how businesses see their employees and their contribution. It has sparked a new way of thinking — one that has elevated an employee from a mere resource to an asset.
Your human capital, if managed prudently, can generate exponential value for your business, much similar to your financial capital or material assets. But what kind of benefits can you expect from it? And what steps can you take to maximize its value? In this article, we will address all these questions to help you understand why human capital should be a priority for your business. Before that, let’s examine the difference between human capital and human resources.
Human capital vs. human resources
Investopedia defines human capital as “the economic value of a worker’s experience and skills”. It could include their knowledge, skill sets, and experiences. Human capital is often an intangible asset for your organization that may not appear on your balance sheets with a quantified dollar value.
The concept of human resources, however, treats employees as a “resource” available for the business. It primarily focuses on the tasks they perform.
Naturally, some activities carried out under the human capital and human resource management functions will overlap. For example, both involve the essential administrative tasks of recruitment and payroll management.
But human capital management (HCM) goes beyond the processes and procedures of managing your teams. Importantly, it focuses on maximizing their economic value.
Why human capital matters
A human capital approach to employees has distinct advantages that could translate into both tangible and intangible benefits for your organization.
Improve employee retention
A high turnover affects the overall employee morale within a workplace and could cause a substantial dent in your business’s P&L. In fact, the Work Institute estimates that every year, US businesses lose $630 billion because of employee turnover.
Human capital management acknowledges an employee’s economic value and serves to maximize it by retaining staff for longer. After all, happy employees are less likely to seek opportunities elsewhere and will be keener to become a part of your organization’s growth.
Build organizational performance
Highly engaged and empowered employees will deliver better customer service, collaborate more effectively within the organization, and will be more productive. They are also better aligned with their company’s vision and goals so they could contribute toward business growth.
Attract outstanding talent
An employee-first approach is critical to attracting new talent. A strong focus on employee relations, development, and well-being can support your efforts to attract the best talent available.
Building your human capital
Human capital management requires a concerted strategy to yield the best outcomes. Here are three core areas you should consider.
1. Invest in employee development.
A focus on employee development, learning, and growth is the foundation of an employee-centric business approach. An organization with a long-term view of business success will prioritize investments in developing its team. It’s how you equip employees to drive performance and maximize their economic value for your business. Besides, effective learning and development (L&D) initiatives will encourage employees to think differently, drive innovation, embrace change, and adapt to new situations. These are all pivotal elements to building a high-performing team.
So, help your staff learn new skills, gain better exposure, and build expertise. Create a clear path for them to progress in their career within your company.
Automating your HR systems is a definite step in the right direction. It will allow you to track and monitor the ROI of your L&D investments so you can understand the tangible impact of your efforts. You get to identify gaps, track progress, validate L&D interventions, and create data-driven L&D programs by leveraging data input from various sources. Moreover, automation technologies are vital to integrating all your HR systems and gaining coherent data insights into your HCM practices and initiatives.
If you require additional support in creating a learning and development strategy that could set you apart, you can always seek external assistance. Leadar is an excellent resource for finding L&D experts specializing in your industry.
2. Invest in employee well-being.
Employee well-being has been a top concern for many business leaders, especially during the COVID times. Before the pandemic, spas, gyms, meditation spaces, chill-out rooms, free meals, and unlimited snacks were undoubtedly much-welcomed employee perks. But the truth was, many individuals did not fully use a lot of these benefits — they were simply good-to-have perks that were not essential comforts.
According to SHRM’s 2022 Employee Benefits Survey, your team will likely value employee-centered practices and policies over material comforts. These include flexible work hours, four-day work weeks, and paid time off for mental health. For employees, these seem to make a more meaningful impact on their lives.
3. Reassess your recruitment strategy.
For some companies, filling a new or vacated position as quickly as possible is the sole purpose of the hiring process. So, they assess candidates for experience, knowledge, and skills.
But employees you hire should be able to align well with your business’s vision and values to deliver true economic value. Organizations that understand this have made cultural fit an essential part of their recruitment strategy. This signals a commitment to both the organization’s vision and its employees’ future growth.
Driving business growth with human capital
According to McKinsey, human capital represents, on average, two-thirds of an individual’s total wealth. It is little wonder that deploying an effective HCM strategy has become a priority for many businesses today.
Organizations may still be unable to fully quantify their human capital’s contribution in the financial statements. But the benefits are undeniable. A people-first approach is an essential pillar for building a high-performing team and driving long-term business success. It can even position your organization to better attract outstanding talent.