Study after study has already proven that investing in your people in a meaningful, strategic way yields exceptional returns in multiple columns: culture, community, wellness, and profit. In fact, it is hard to find any research that suggests human capital investment is anything but one of the most powerful asset levers in an organization’s arsenal. The data below demonstrates this beyond any doubt. So why isn’t every company committing to this proven strategy?
First, let’s establish the business case. JP Morgan, “The Research Firm that won 2020,” studied a metric created by Dr. Dan Ariely and the team at Irrational Capital. The Human Capital Factor (HCF) is a quantitative, research-based measurement of intangibles such as “trust, purpose, pride, psychological safety, and transparency” that generates “the highest returns and lowest volatility among all U.S. investment styles, with very low correlation to other factors.” Simply put, The Human Capital Factor “strictly dominates all [other investment] styles across all metrics.” Dr. Ariely explains how his firm has been achieving these exceptional returns on a recent podcast.
But Irrational Capital is far from being first to the party. The Enterprise Engagement Alliance used research from McBassi & Company to develop the “Engaged Company Index,” a group of companies with higher employee engagement scores. This group out-performed the sizzling S&P 500 by a staggering 37.1% over the six-year period of the study ending in 2018.
Is all of this data relevant to smaller companies? In the book Completing Capitalism: Heal Business to Heal the World, authors Bruno Roche and Jay Jakub share the stories and data of their research with micro-businesses across the world. Having built a stakeholder capitalism framework, Bruno and Jay set out to discover if the model would actually work, expecting profitability in no less than two years. Shockingly, in just about half-a-year, the principles of investing in people were already yielding massive returns for both the small businesses and their supplier, Mars.
There is even more data from organizations like JUST Capital, the Economics of Mutuality, and The World Bank on the efficacy of human capital investment. It is no longer an open question of whether or not investing in people will generate outsized returns; it is merely a question of how to do it.
And the “how” is the obstacle. Meaningful human capital investment requires a strategic approach to improving factors like:
- Corporate Identity (walking the talk)
- Employee Trust
- Upward Mobility
- Status and Recognition
- Direct Report Engagement
- General Well-Being
- Job-Specific Well-Being
These are not challenges that can be solved through the purchase of a “freemium” employee engagement platform or even the most sophisticated HRIS (Human Resource Information System) products. Human capital investment requires the allocation of precious time and resources—supported and empowered by the very highest levels of company leadership—to yield its potential returns. It means rethinking processes, policies, and procedures and designing a workday that builds a sense of purpose and trust instead of a “clock-in/clock-out” culture. Dealing with the human emotions and motivators that drive progress and psychological comfort is messy work, and it needs the courage, vulnerability, and humility of the C-suite and management to make it work.
Companies like Amazon, Wal-Mart, and JP Morgan are already pivoting toward this future while consulting giants Deloitte, Accenture, and McKinsey have committed billions of dollars to new human capital strategies and departments. The change is coming.
The rewards of human capital investment are clear: better culture, employee engagement, health, community and social capital, and higher profits. But it demands an organization and its leaders to be brave enough to reimagine and rebuild work around an employee-centric model that quantifies things like trust, purpose, relationship, progress, and holistic wellness.
This is a difficult process, but those with the courage to embark on the journey today will be far ahead—in talent, culture, wellness, and profit—of the organizations that wait for the change to happen to them.