Why is Human Capital Important to Every Organization’s Profit?

The value of staff is something that is often overlooked by many companies. In actuality, human capital is a valuable asset for many businesses.

Human capital refers to the skills, knowledge or training that individuals or teams possess. Businesses should be looking for an increase in human capital to grow the value of their company financially, to spur greater productivity, and to keep their workforce motivated.

The Revenue Impact of Increased Human Capital

To answer the question of why human capital is important to every organization, it helps to put a monetary value on it. There is an impact on revenue as human capital increases, but it can sometimes be difficult to measure accurately.

By investing in your staff, you can improve their productivity and get better ROI (return on investment). You can calculate the value as follows:

Imagine that you can increase productivity by 15 minutes per day.

If the employee works 5 days per week — 5 x 0.25 = 1.5 hours per week or 3.1% increase in productivity.

For a $5 million company, that is an increase of $155,000 per year – well worth the investment!

How to Increase Human Capital and Use your Employees to Drive Profits

It is important that your employees are kept productive to be able to increase human capital. This will then increase your company’s overall productivity levels and drive your profits up. This can be achieved in two ways – firstly, by closely monitoring what your employees are doing, and secondly, by ensuring that they are well motivated.

Company scorecards or dashboard reports link “company” and “people” scorecards, showing the financial impact of an employee, team or department. The scorecard can use KPIs (Key Performance Indicators) to show how the employee is developing in his or her role, and can then be linked to how this is helping the business financially.

By understanding how human capital contributes to development, you can use these KPIs to calculate the financial impact of your employee development and consequently, your business`s profits.

Increasing Employee Retention

It is essential that businesses work towards the best employee retention rate possible. You’ve already worked hard to get the right people in, invested time in training them and achieved success through your happy and motivated employees. You don’t want someone that you have effectively trained leaving your company and going directly to one of your competitors.

A high staff turnover rate also puts pressure on other staff members, creating poor employee morale and ultimately negatively affecting your bottom line.

When you are looking to motivate an employee, it is important to remember that everyone is different. A successful tactic to try is to discover what motivates each employee and offer incentives that match these needs. You might be able to incentivize those motivated by time by offering them flexible hours or a half day on a Friday (where possible), or for those motivated by money, the incentive might be a pay raise or bonus.

Compensation Strategy and Pay Structure

When developing human capital, incentives can be linked to a compensation strategy or pay structure. The strategy should link the rewards with results – not actions. This will ensure that success is being achieved.

By recognizing your employees as human capital and assets, you can set out clearly how you are going to invest in them, which is essential for both the business’ development, as well as the personal development, motivation and retention of employees. With an organized human capital strategy, just like any other investment, you will see your efforts paying off financially in no time.

Increasing your productivity and reducing your expenses can be as simple as outsourcing your accounting and bookkeeping needs.

Here at NuVest Management Services, we aim to bring the same competitive advantages enjoyed by large organizations to the small and medium-sized market. Contact us today to see how we can help you.

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