People Are Assets: Invest In Them Accordingly

Read our article in the Cayman Financial Review Magazine, eversion 

I was chatting with a client recently who runs a successful business on-island. He mentioned that he’d recently bought a “new” secondhand car. He was pleased with the purchase but there were  a few things that needed fixing.

From what I can recall from the conversation, the tie rod ends were worn, the air-conditioning only worked on the highest setting, and the lid support for the trunk didn’t stay up on its own.

Whilst getting these things sorted out at a local garage, the car was also given a full service (oil change, tire rotation and alignment, etc). My client had obviously insured the car and once it had passed its inspection, had obtained the requite vehicle licensing documents. On top of the original purchase price, the “new” car cost him an additional $2,800.

Money well spent, in his opinion, to make it suitably safe and roadworthy (after all, his kids would be in it) and to get the best performance out of it. He saw the outlay of money as an investment in an asset that, if maintained  roperly, would last for years to come.

I then asked him how close to this amount he had spent investing in each of his employees over the last two years. Answer: no-where near as much.  Frankly, I wasn’t that surprised.

Although it is common to hear business leaders claim that “people are our greatest asset” and “a source of competitive advantage,” people still appear as a cost on balance sheets. The end result?  We systematically under-invest in people relative to all other assets within an organization.

The way we account for people rarely recognizes that the here-and-now expenditures on say,  raining and development, can result in a later economic gain due to a higher, superior performing, more value-adding workforce, capable of delivering sustainable results.

That could all change shortly. Human capital (people) is usually classified as an intangible asset, along with things like brand, customer goodwill, and intellectual property. According to some  xperts, intangible assets comprise up to 85 per cent of an organization’s value and increasing attention is being given to them because they are mostly the source of an organization’s wealth creating capabilities today. For example, if properly bundled or clustered, human capital policies and procedures alone can impact an organization’s performance by approximately 10 per cent – a significant number.

That’s caught the attention of external parties. The investment community is now more likely to request data that provides them with an understanding of the relationship between an organization’s human capital management practices and its performance, so they can assess its true corporate value; and the EU has called for greater transparency of internal and external human capital  measurement and reporting methods, so that government policies can be formulated with a better orientation towards the needs of services-dominated economies.

Clearly, it’s a challenge in this tough economic environment for organization’s to fund training and development programs for its employees. But a shortterm “reactionist” perspective could hurt in the long run. The massive labor shortage still looms large as baby boomers begin to retire (e.g., an estimated 76 million in the US alone, compared with only 48 million under the age of 40 waiting in the wings to replace them).

There is likely to be strong competition for the most talented younger workers (30 and under), which means that employers will need to attract and retain younger workers and prepare them to fill leadership positions at a much faster rate than their predecessors did. And younger employees tend to place a high value on advancement opportunities (i.e., working for organizations that  provide continuing education and training benefits and the opportunity to develop new skills that help advance their careers).

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