Investing In Human Capital – An Ounce Of Prevention?

human capitalOur wall heater was leaking gas.

The gas company came out and told us that we had a faulty main gas valve.

Now it so happens that we have a home repair insurance policy for just such occasions. Pay a flat $60 for the visit, and they will replace the faulty main gas valve.

Then they tell me it will be an extra $95 to clean the burners. And the insurance doesn’t cover it because that is considered regular “maintenance.”

My response was, “So what you’re saying is, I should not clean the burners, and wait for something to break, in order for you to pay for it.” It seemed crazy to me that they’d pay when it breaks, but not to keep it from breaking.

This is very similar to healthcare discussions about preventative medicine being covered or not – and what makes the most economical sense.

…A Pound of Cure?

But it begs a bigger question for businesses around the world – how much should we invest to avoid problems down the road.

I’m specifically talking about human capital – and investments in the form of education, training, coaching, developmental programs.

There’s an excellent article in this month’s Harvard Business Review about this issue. “A Job Compact For America’s Future – Badly Needed Investments In Human Capital Are Not Being Made. What Can We Do – Together – To Jump Start The Process?”

Recently, a client of mine, a medium-sized company, went through a major overhaul – cutting back expenses, laying people off – in an attempt to make the profit look better for potential buyers. This was a company that I had provided coaching services to for over four years. My services were cut way back, though I was lucky compared to some others.

I share this only to illustrate how investment in their human capital was one of the first things to get cut. Which is not unusual.

And the HBR article articulates the problem beautifully: “What’s good for individual U.S. companies is no longer automatically good for business nationwide, for U.S. workers, or for the economy…[and] individual firms are not shouldering the true costs of their actions. They benefit from minimizing their own labor costs while society picks up the tab for their lack of investment in human capital: slow economic growth, unemployment, welfare, and so on.”

Moving In The Wrong Direction

Consider this: “From 1947 to 1979, productivity and real wages both grew by roughly 2-3% a year. This tandem movement ended around 1980. From 1980 to 2010, productivity grew by about 84%, median household income by 10%, and average hourly earnings by 5%.”

We are currently stuck in the worst economic, political and social crises since the Great Depression. And we hear the usual scapegoats – unions, management, taxes, regulations, breakdown of the family.

People who know me know that I’m not shy about sharing my political beliefs. But I have to say, that I don’t believe any of the major political parties are addressing this issue in the way I feel it needs to be addressed.

We Are All Stakeholders

There needs to be a complete paradigm shift about the roles each of the stakeholders play. Corporations, management, labor, government, business schools and K-12 education all have vital roles to play – and none can solve these issues on their own.

One shift is that human capital must be seen as an asset, not a cost. The companies that do this pursue what is called a “high-road” strategy – investment in training and development, selection of employees with technical, problem-solving and collaborative skills, compensation systems that align the firm’s and the employees’ interests…among others.

“Two decades’ worth of research on high-road companies has documented their ability to achieve world-class productivity and service quality.”

Public schools need to be improved, business schools need to shift their focus away from a “finance-only” attitude, infrastructure needs to be maintained and expanded. These types of expenditures cannot be shouldered by government alone, and yet someone, or a team of someones need to pick up the slack. This will require a shift in how we face these challenges – we need a solution that goes beyond simple profit motivation.

The author of the article has some more specific suggestions – worthwhile reading if this interests you.

Meanwhile, I paid the extra $95 to do the preventative maintenance, which is what we all need to be doing.

Photo: Flikr – Cuba Gallery