Maintaining human capital: a mission-critical mindset for leaders

In today’s increasingly services-driven economy, knowledge leads to growth. However, while cultures built on learning and development are crucial for growth, investment lags far behind the necessary levels. Apratim Purakayastha at Skillsoft explains why this needs to change

 

To some extent, every business invests in capital equipment and software, both of which need continuous maintenance to deliver optimum performance and ensure maximum return. This maintenance cost, for example, is often between 5 and 20 per cent of the original purchase price or yearly licence price.

 

Businesses usually take this for granted, putting it in the Total Cost of Ownership (TCO) category. Ideally, they view it as a necessary investment.

 

Human capital, in contrast, is not machines or software. However, it deserves the same investment and maintenance level to remain competitive and functional – if not more than that of technology infrastructure or software solutions.

 

Yet, this perspective is frequently lacking. Consider an employee’s fully loaded cost as the yearly licence cost for the intellectual output of the employee.

 

Software and SaaS licence price increases are akin to employee compensation increases; investment in employee learning and growth is akin to yearly spend on maintenance and upgrades. Let us call this the Total Cost of Growth (TCG).

 

Why learning and development fuel growth

While many organisations claim that people are their greatest asset, their limited learning and development (L&D) efforts say otherwise, leading to skills gaps, retention challenges and lower levels of workforce engagement and productivity.

 

According to Skillsoft’s 2022 IT Skills and Salary survey, a lack of training and development was one of the top three reasons employees have decided to switch jobs in the past year. Yet, retention is the biggest challenge for IT leaders, with 63% unable to fill at least three positions in the last year.

 

The reason why many organisations fall short is that they apply the wrong mindset. While TCO ensures that capital investments are in good working condition, TCG ensures that employees are in “good working condition.”

 

Think of it this way: for knowledge workers, ‘maintenance’ is about staying relevant, competent, and ahead of the curve. This requires an investment of time and resources from employees and employers, particularly given today’s rapidly changing technological, social, and geopolitical landscape.

 

Just like lubrication in machines protects them against environmental atrophy, sustained learning protects employees against intellectual stagnation or decline as the environment changes around them.

 

Decisions about where to focus L&D funding and resources come down to mindset. Why, for example, would organisations resist spending at least three per cent of annual “licence” costs (e.g. salary) on their human capital? What is the downside of optimising that capital investment, so it stays in tip-top shape to handle change such that the enterprise remains competitive and the workforce remains motivated and engaged?

 

Those who are not investing anything close to that are essentially ignoring the potential of human capital and letting it atrophy, or worse, watching that capital move to another enterprise willing to invest in the growth and development of its talent.

 

The severity of this cannot be overstated, with Skillsoft research highlighting that over half of IT professionals are extremely or somewhat likely to look for a new job in the next 12 months.

 

The true cost of recruitment

Recruitment is also far more costly than retention.  On average, the voluntary loss of productivity, recruiting costs, and wage inflation with new hires cost companies big. SHRM reported that it could cost a company six to nine months of an employee’s salary to replace them. Employee replacement costs can be as high as 50 – 60%, with overall costs ranging from 90 – 200%.

 

Even if a company spends three per cent of total compensation on training and development, filling more roles internally pays off the cost of L&D and more.

 

However, generally, companies do not spend anywhere close to three per cent of employee compensation on L&D. With this in mind, organisations should ensure that growth for the employees and growth for the enterprise are synchronised as part of a win-win approach.

 

IT skills shortages illustrate a widespread challenge

In the current employment climate, these perspectives are arguably more important than ever, particularly across roles where skills shortages and talent gaps are already translating into major business challenges.

 

Our research shows that an overwhelming 80% of IT leaders say skills gaps pose a high or medium risk to their team’s ability to meet objectives. As a result, more organisations are focusing on the effect that a shortfall in technical skills can have on growth, their ability to deliver new experiences to employees and/or customers and transform the way they do business.

 

As this reality becomes more widely discussed, it fuels an already vibrant labour market where employers aren’t currently calling the shots. Yes, despite the widespread publicity of big technology companies reducing workforces, technology workers remain in high demand across all sectors.

 

This situation has forced many in leadership to reassess what’s possible and begin charting a new course. In many forward-thinking organisations, learning is becoming the catalyst for mutually beneficial growth for employees and employers, especially as organisations struggle to retain technical talent and keep pace with innovation.

 

Companies that create learning and talent development cultures will be most successful in recruiting and retaining ambitious individuals with the right skills and experience to make an impact.

 

However, companies must invest wisely in L&D; too often, it is treated as an employee benefit, measured by how much content is bought rather than on quality, assessment and curation.

 

However, this leaves no measurable ROI in terms of retention, internal mobility, and workforce development that maps back to strategic goals. Companies that are effective with TCG investment are deliberate about employee development for strategic business needs.

 

Five steps to retention and value

So, what practical steps can organisations take to maximise their employee retention rate for IT teams and all roles in general?

 

The process should start by measuring team capabilities. Some IT leaders are in the dark about their skills gaps, creating the opportunity for gaps to threaten operations or elevate organisational risk. These dangers can be minimised by assessing team capabilities to identify both gaps and areas to grow.

 

Next, IT leaders should collaborate with their counterparts in L&D to focus training programmes on key skill areas. The benefits of this partnership can manifest in many ways, including better adoption of training programs.

 

Then organisations should personalise training and career development processes and resources. This is crucial because not only do learning preferences vary from person to person, but their ambitions are also unique. While some people will be focused on building new skills, others want to earn a certification or take on extra responsibilities at work – a ‘one size fits all’ approach should be avoided.

 

Best-in-class companies often blend learning methods like videos, books, and virtual live instruction. Learning platforms that engage the learner with recommendations, social cues, badges, goals, reminders and gamification are valuable. Organisations should also focus on developing employees holistically by offering a balance of technical skills (e.g., programming, data) with power skills (e.g., communication, agility).

 

Finally, in implementing these initiatives, progress should be tracked over time. Working out what success looks like from both employer and employee perspectives makes it much more practical to track progress in a meaningful way.

 

In prioritising these initiatives alongside a mindset that focuses on employer-employee growth, organisations are much better placed to address talent shortages and build long-term success. After all, the Total Cost of Growth is a critical investment which enables the whole company to sustain and grow.

 

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Apratim Purakayastha is CPO & CTO at Skillsoft

 

Main image courtesy of iStockPhoto.com