Human Resources

5 Steps to Investing Wisely in Human Capital Development

Investing in your workers is always cheaper than training their replacement.
5 Steps to Investing Wisely in Human Capital Development
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5 min read
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"Human capital development" has definitely achieved buzzword status. 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.

Related: 6 Recent Trends in Human Capital World

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.

Related: Offer These 50 Free Professional Resources to Your Employees

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.

Related: Why Team Input Is the Key to Successful Benefits Planning

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.

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