why is it important to invest in human capital

In today s world, it is easy for companies to be pulled in many different investment directions. But what we have to ask ourselves is which investment is most wise to make in order to get ahead in this highly-competitive dog-eat-dog business environment. Should we invest in assets such as land and equipment? Or is it about investing in charitable organizations and flaunting your support by giving generously. Most would say that in order to see growth in your future, you should take the route of investing heavily in what you own- what you call yours. This may include purchasing more land for development, or investing in the latest technological advancements. Although these types of investments may make a business feel as though they are investing in themselves, that is exactly what they are doing-investing purely in a select part of themselves. One investment move that is highly important and often overlooked by many companies is the importance of investing in a company s largest assets -their people! Investing in human capital is extremely important in order for a business to thrive in today s marketplace, and also for economic improvement. Let s take a moment to think about this decision. If you choose to invest in associates by buying them that new, comfortable office desk and chair, how long will their productivity increase? Chances are only until those wheels start to ware and they set their sights on the latest and greatest office desk; then that increase in productivity and appreciation will start to falter. So what exactly is involved in investing in human capital? Providing opportunities for growth and advancement to associates through education and improvement programs. Investing in human capital is investing in the skills and capabilities of your human assets- whether that consists of front-line staff, sales representatives, managers, supervisors or any associate; organization-wide. The advantages of investing in human capital not only include increased associate productivity, but also increased loyalty. If associates feel that they are worthy of a company s investment funds, they will feel an increase in motivation to bring success to their employer. We all love it when a boss or manager praises us for our actions. Take that feeling and think how that translates to an associate who was just given that training, skills, or access to the information that helps them not only improve their ability to perform their job, but it improves who they are: skills that apply to them both personally and professionally. Associate participation in continuous skills development will act as a catapult toward improved sales, productivity, better business, competitive edge over competition and ultimately bottom-line profits. Many companies are first to say that they are heavily invested in their human assets, yet very few have been known to walk the walk in that direction. The term capital does not maintain a given value. It is something that will gain and lose its value, depending on the amount of investment made. These people that we are investing in are true assets that have potential to increase in value. They do not depreciate, and are not easily written-off at the end of the year. They are primary assets which should be appreciated, managed and developed as true assets, and not liabilities. At the end of the day, those investments will bring out the most committed, talented people within the organization. It is those individuals who will bring a business to true success.


As part of their long-term strategy, every company should avoid cutting the cord on their training budget. Investment in people will prove to be just as smart as investments in other assets- if not wiser. The most important aspects of a company are great products, great service, great relationships and a solid reputation. Without great people, none of these can exist. Do you agree that your organization should start investing in YOUR most valuable assets- your people? We can help you get started as early as today. Simply send us a quick inquiry, and we will work together with you to identify which areas your organization could use the most improvement in, and get you well on your way to building a team of peak performers. Tags:,
The concept of human capital refers to the education, on-the job training, and work experience of the labor force. It is analogous to other forms of capital in that investments in human capital yield income and other benefits over a long time. An investment in human capital means investing in education or some form of on-the job training to improve quality. Such investments provide returns to the individual as well as to the economy as a whole. Individuals benefit from higher earnings, and the economy as a whole benefits from higher productivity. Human capital theory is concerned with finding ways to measure human capital and the rate of return on investments in human capital, both to the individual and to the economy as a whole. The quality of the labor force, or investment in human capital, can be measured in different ways. One way is to measure expenditures on education and training. Since the overall health of workers also affects productivity, investments in medical care are sometimes considered human capital expenditures. A 1998 survey of 12 developed nations indicated that investment in human capital accounted for at least 10 percent of national income in most countries. This included public and private expenditures on initial education as well as spending on training after school. Policy issues related to such a level of expenditure include what volume of spending would be appropriate, how resources should be allocated among different types of human capital investments, and what part of the cost should be borne by companies, individuals, and government agencies. Public policy decisions regarding investment in human capital rely on measuring the rates of return on such investments. Restrictive measurements compare the additional earnings from of better educated or -trained individuals to the additional social cost of investing in more education. Other less restrictive measurements take into account the social and economic benefits of such investments, such as better public health, lower crime, and a better environment. Another method of measuring the quality of a country s labor force is to determine its occupational composition. In the United States, for example, the percentage of laborers and unskilled workers has decreased over time, while the percentage of professionals, managers, executives, and technical workers has increased. These changes during the 20th century indicate that the quality of the labor force has risen. Such a change can be quantified to determine how rapidly the average skill level of the labor force has risen over time. Studies have shown that investments in human capital are essential for sustaining economic growth over time.


The law of diminishing returns suggests that investments in physical capital and land eventually fail to result in economic growth. Yet, countries such as the United States, Japan, and many European nations have sustained economic growth over the past century. Heavy investment in the training of workers and a better educated labor force are given credit for much of the growth in per capita incomes and economic productivity. A comparison of modern, educated farmers with farmers in traditional economies shows the need for educating workers to help them cope with changing technologies. While economists have been able to demonstrate a statistical relationship between education and earnings, they have not been able to conclusively show a cause-and-effect relationship. That is, while higher earnings are associated with more education, it has yet to be conclusively shown that more education leads to higher earnings. The theory that more education is a causative factor in higher earnings has been attacked on two points. One is the ability problem, or the fact that more-highly educated individuals are also likely to have the ability, self-discipline, and motivation that also result in higher earnings. Such individuals tend to do well in the labor market, it is argued, not because of their education, but because of other abilities. A second critique of the human capital theory is the screening hypothesis, which states that higher levels of education serve to grade and label individuals in the job market. That is, higher levels of education do not necessarily make individuals more productive, they simply give people credentials that are then associated with higher-paying jobs. If this criticism is valid, then it can be argued that greater social expenditures on education may not result in as much increased economic productivity as the human capital model would suggest. The concept of human capital can be applied to the individual firm as well as to the economy as a whole. The expertise of a company s employees is often referred to as its intellectual capital. It may include such intellectual assets as patents, processes, skills, technologies, information systems, and customer knowledge. Like human capital, intellectual capital is difficult to measure, and companies that recognize its benefits are seeking ways to manage and codify it. With access to capital and technology tending to level the playing field between companies, human capital has become essential to sustaining a competitive advantage. In order to gain the most from investments in human capital, and in recognition of the importance of people processes, companies are linking individual behavior with corporate goals. The strategic approach to human capital focuses on processes such as dialogue and discussion. Strategies to develop human capital within an organization also focus on the future and take a long-term approach. Companies can invest in intellectual capital, just as countries invest in human capital, through training programs and hiring practices. Human resources departments can develop a long-term strategy to maximize human capital. Social investment in human capital is a matter of public policy. Examples of policies that tend to increase a country s stock of human capital include using the human capital of women, investing in higher education, supporting dropout prevention programs, and encouraging highly skilled immigrants to enter the workforce.

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