Human Capital, as written in the dictionary, “[is] the skills, knowledge, and experience possessed by an individual or population, viewed in terms of their value or cost to an organization or country.” In simpler terms, it’s the value of people, and in a business sense, the value of your employees to your company. It is important to realize that the people you hire have profound effects on your business.
Why Your Employees are Important
So why exactly are your employees so important? There are many reasons, in fact they are so important that according to the Society for Human Resource Management, salaries can be up to 52% of a company’s operating budget. This is because human knowledge and skills are essential for most jobs and all organizations. They are imperative in allowing a business to operate properly, which means they are also the force behind the profit making abilities of your company. Investing in your people is one of the best ways to invest in your company. Giving your employees the motivation and incentive to increase productivity by even just ten minutes a day your increasing each employee’s productivity by nearly an hour a week and that adds up quickly. Your employees are important to your success and that is even more evident with the following comparisons of good and poor human capital practices.
The Impacts of Good Human Capital
The positive impacts of strong human capital practices are countless. Of course there are benefits to your employees directly which increases employee satisfaction, but there are also more direct company bonuses as well. One of the most appealing effects is improving your ROI and that is done by your employees being motivated and satisfied, therefore working hard and being productive. Another way good human capital practices improve ROI is that having these practices increases a company’s retention rate, which helps with client and customer relations and can lead to stronger communication throughout the formal and informal networks. Those are just a few examples and the list goes on, but they’re even more impressive impacts when compared to the effects of poor human capital and human capital management.
The Effects of Poor Human Capital
As we’ve discussed, your employees and how you manage them has a significant effect on any business. All the good things that came from good human capital practices are reversed, such as employee dissatisfaction and productivity, as well as a higher turnover rate. Poor practices in this area also can have negative impacts on the company’s overall culture, which in turn has negative effects on recruitment and even compliance. So as you can see your employees and human capital management is critical in a successful business and something all businesses should recognize.
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