Guest post from Shawn Cloete:

During the last few months, we have asked several of our clients and business networks the most burning question that is at the tip of all employees lips:

“why” do businesses invest so much in employing and remunerating their staff but don’t truly invest in them further?

Let’s take a step back for a minute and ask ourselves what are the largest if not second largest expense within any business today? If you guessed the salary/wage bill, you would be correct. We can, therefore, assume that this portion of the expenditure should benefit from a large investment to ensure that the expense is proportioned correctly. Unfortunately, the reality is this portion which again is the largest on the Statement of Financial Position receives the smallest investment. So, why do businesses invest so much in employing and remunerating their human capital but don’t invest in them further? The reason for this could be as simple as the Return On Investment is perceived to be not tangible in human capital.

HR (Human Resources), as well as other departments such as Marketing and I.T (Information Technology), do not necessarily produce revenue for the business and as such do not receive the investment as necessary as for example a new product would that is currently under development. Business views investment in product development as innovation, which is paramount to ensuring long-term sustainability to continue driving the business forward. Are businesses missing the point here and are they failing to realise the importance of developing and investing in their Human Capital? One could ask one self “Why” would we not invest in the largest expense on our Statement of Financial Position? Are there better ways in measuring Human Capital metrics? Is the current formula still relevant when calculating the HCROI? Does this mean we should start looking at our intangible metrics such as Value on Investment (VOI)? VOI refers to the overall value received on any given financial investment. Basically, VOI includes the financial return, but also takes into account more abstract value that was received from that investment. Using measurable metrics improves the credibility of HR and allows senior management to ascertain specific, measurable ways that HR services benefit the business. Its no longer good enough for HR to state that certain programs were believed to be beneficial, you need to prove the worth of your actions to business and take back your seat at the boardroom table. HR is sitting on mountains of data that when used correctly can change the direction of any company today. In difficult economic times like the times we are living in, the value of areas such as HR, Training, IT, and Marketing is often seen as non-essential to the organisations core mission hence the constant resistance and budget cuts.

According to Tia Benjamin, To calculate the ROI of human capital, divide the organisation’s net revenue — gross revenue after deducting operating expenses, salaries and benefits — by the cost of salaries and benefits. To calculate the ROI of a particular program, you must first calculate the value of the specific program itself, then divide it by the costs of implementing the program. For example, if a training program to speed production of a factory line results in an increased amount of product, calculate the value of the additional product and divide that by the costs of providing the training and materials. In some cases a general increase in productivity, for example, you will need to isolate the portion of the increase that was because of an HR measure before calculating ROI. Conduct an analysis of groups that underwent a training class, versus groups that did not, to estimate the effect. Alternatively, use an expert to estimate the percentage increase that was because of the training.

Taking into account the above calculation, would it not be better to take a look at the goals of an organisation to see why they not truly investing in their people going forward to produce more below the line results? Your organisation goals can tell you if your program/project has a “people” focus, a “productivity” focus, or some other type of focus that lends well to using either ROI or VOI in order for your senior managers to have your back and support your program as their confidence grows and they can now start to see the tangible outcomes you have demonstrated. Is that enough proof to get them to invest more in the people? How will you measure culture? Or do you aim your investment into talented employees that are “force multipliers”, raising the performance bar for their colleagues, and particularly for their direct reports? For that you will need more than a formula. You will need real-time analytics from a software company such as Teamphoria for that.

In 2018, we will continue to see more and more businesses invest in areas such as improved morale, employee engagement and greater employee satisfaction as disruptive new technologies such as Teamphoria make it easier to measure and monitor Human Capital performance and culture. Thus ultimately giving all levels of human capital within the business the platform to take control of their development, engagement, moral and the investment required by the business to drive better results which has a very tangible result for your organisation to change its perception for the need to invest in its people further.

If you would like to discuss these topics for your business you can reach out to us here: hello@thiink.co.za

Shawn Cloete Founder at THIINK | Entrepreneur: Streamlining business complexity by delivering world class digital solutions.

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