Investing in people – peculiarities, kinds, stages and recommendations. Invest money in people so that you got income from it in the future.
Nowadays the problem of using human capital becomes more and more topical.
The main part in the country’s economy development is devoted to a person as the carrier of wealth, which defines the maximum and all-round usage of human resources.
Good education systems and health care maintain the economy better than the stock of oil, metal or wood.
Due to it, the countries, which invest in the human capital, develop faster and more stable.
Investing in people concern the expenses (money and time), which are required for people to maintain and improve health, develop the culture, get education and professional training, skills and experience in the working activities.
Peculiarities of investing in people
Investments in human capital have the number of peculiarities, which differ from the rest of investments:
Firstly, the return from investing in people directly depends on the lifetime of the carrier (from the duration of period, when a person is able to work).
The earlier you invest in a person, the sooner he’ll begin to gain traction.
- Secondly, progressively as the human capital is growing, his profitability is also increasing to some extent, which was set by the upper limit of active working activity (active period, when a person is able to work) and then rapidly decreasing.
Thirdly, not all investments in a person can be acknowledged as investments in people.
For instance, the expenses, which are connected to the criminal activities, are not investments in people, because they are impractical and harmful for the society.
- Fourthly, the character and kinds of investments in people are conditioned by the historical, national, cultural peculiarities, customs and traditions.
Fifthly, comparing to investments in various forms of capital, investing in people is the most profitable from the point of view of a separate individual as well as from the society’s opinion.
Investments in people bring its owner a higher income in the future.
Such investing brings longer in time and character economic and social effect to the society.
The sixth peculiarity is that investing in people is supposed to last long.
If investments in education serve only 17-25 years, a person will invest in health all his life.
Options of how to invest in people
In the economy’s theory the human capital is defined as a certain asset of well, which accumulates and brings profit due to investments.
To store the asset of well, a person needs expenses which increase the manufacturing and professional individual’s qualities.
These expenses are made with the account that they will be many times compensated by the increased flows of income in the future.
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Kinds of investing in people according to C. McConnell and S. Brue:
- the expenses on education, including basic and special, formal and informal, preparation at the working place;
- the expenses on health care, which include the disease prevention, health service, dietetic nutrition and improvement of living conditions;
- the expenses on mobility, due to which the workers migrate from places with relatively poor productivity, payment and work conditions.
There is also the division of investments in people on the material and immaterial:
- The first group covers all expenses, which are required for the physical formation and human development (needed for birth and upbringing);
- The second group concerns the saved expenses on the basic education and special training, and partially on health care and transfer of the working power.
How to invest in people step-by-step?
People, being a complicated social and economic category, have qualitative and quantitative characteristics and it’s quite clear that in order to improve them one needs to invest.
Stages of investing in people:
At the first stage the professional orientation and teaching take place, usually in the educational institutions for the future specialists and qualified workers.
At the second stage you invest in the search and hiring the workers.
Such expenses have the constant character, because they are connected to the systematic work of the personnel department, which plan the need in the workers, development of the primary documentation, testing programs for the candidates and signing the contracts.
The third stage deals with the expenses on the employee for the period, when he adjusts to the organization.
The following expenses are conditioned by the payment for the newly hired worker.
As a rule, this is a probationary period (2-3 months).
The end of the adjustment period must correspond to the beginning of the pay-back of investments in the personnel.
At the fourth stage you invest in the period of potential’s accumulation and growth.
The size of invested sum of money corresponds to the expenses on the salary.
However, at this stage the professionalism of the worker is not enough for the employer to receive the surplus product, which forms the income.
The fifth stage defines the expenses on the employee in the period of achieving professionalism.
The sum of money, invested at this stage, is calculated not only from the expenses on salary, but also on various events, connected to the motivation and stimulation to work effectively.
The sixth stage implies the expenses on the employee, when he studies.
This category has a number of peculiarities.
Firstly, these investments must correspond to the presupposed results of studies.
That’s why you must learn beforehand the efficiency of the education program as well as the need and possibilities of the trained people.
The seventh stage defines the money needed for the period of capitalization of knowledge after the advanced training.
The sum of money corresponds to the period of achieving professionalism.
At this stage you get the maximum possible profit from the workers’ labor and knowledge.
The eighth stage presupposes investing in the worker in the period of professional decrease and moral aging.
The sum of money is equal to the stage of achieving professionalism with the only difference – the system of motivation and stimulation, which was used before, stops bringing positive results and the level of efficiency decreases because of the advanced growth of the progress in science and technology and the old-stored skills and knowledge.
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Investing in people: how to avoid mistakes?
Many directors even in the greatest times skeptically treat investing in people.
In such situation we speak about long-term offer with the postponed effect and the case with no guarantees.
That’s why the owners of the medium and small businesses prefer things that bring fast and instant profit, especially in the unpredictable economic situation.
Many entrepreneurs and directors have the obvious need to estimate the situation in the team quickly and deeply and make reasonable decisions.
One must quickly, easily and extremely precisely set the priorities in the team:
- whom to trust?
- whom to rely on?
- whom to invest in?
- whom to part with?
- with whom to look for another cooperation format?
You do not need the ready receipts and universal “boxes”, you need real people, who are able to ask right questions, hear and create in the conversation the space for discussion and search of new opportunities.
Only this way you are able to estimate your team quickly and in high quality.
There is a risk such assessment will turn into “picking to pieces” and “setting tags”, that’s why it’s significantly important to:
- Evaluate not the personal qualities of people in your team, but the competence of the whole team in general.
- Estimate not according to the principle whether there is competence or not, but in correspondence to the business goals and targets: do you need the competence to achieve long-term goals or not?
Then you’ll be able to single out four groups of team competence:
- Strategically important competence (is significant to preserve long-term competitive advantage and unique marketing offer of the company);
- Key competence (is crucial in achieving goals this year);
- Important competence (is needed to realize certain projects);
- Unimportant competence (does not influence on the goals’ achievement).
Only at this point you can pass to estimating people and making decisions: whom you should invest in and whom you should not invest in?
Recommendations on how to invest in people
For many companies the perspective to turn into the market’s cadre training unit is one of the least pleasant.
You must waste plenty of resources and efforts to prepare the employees and they, having turned into good specialists, start working for the rivals – what can possibly be worse?
Reasons why you should not take it close to heart, when your employees, whom you invest in, left your company:
Firstly, if the specialists you teach are so valuable at the market, they are really able to bring profit.
You should not think how to keep the employee at the current position with the current salary, but you’d better think how to get the maximum from his high qualification.
If you come up with an idea of how to use the employee’s talent in the best way, you’ll find it advantageous to pay respectable salary (not less that your rivals offer).
Secondly, investing in people has something in common with venture investments – they also have certain percentage of success.
In the education process a person is changing, he is getting older and is able to learn something new about himself.
As a result, he might lose interest in work at your company.
When you have many employees, you’ll see the statistics, the goal of which will be to return the investments not in every person, but the general investments.
Let’s assume you hired 10 people and invested in every one of them $10 thousand.
So, if two of these employees can bring you $100 thousand, you already lose nothing.
4 recommendations on how to invest in people, who work in your company:
- Make the process of investing in an employee very clear and controlled: explain to a person that you are ready to spend on his professional and personal growth certain sum of money, efforts and time.
Together with the employee you should set definite goals and track their achievement.
It allows you defining clearly what company invests in a person and the corresponding expenses he may count as a part of his compensation package.
Besides, some people were not satisfied with this situation and they refused to study.
Accordingly, you stop investing in these people, realizing that if they are not interested in self-improvement, there is no sense wasting money on them.
Hiring a new employee to work, you should ask what he wants to achieve being a part of a team.
Then, judging by his ambitions and current position, you create an individual education plan.
In many cases this plan is reviewed many times in the process of work and sometimes it is cardinally changed.
Support those, who want to develop and never forget to speak with them about those advantages, which company must receive.
Nowadays, almost 20% of the staff has its own plans – mainly these are the key specialists, but any employee can turn to you, if he actually wants to develop himself.
Investing in people presupposes getting advantages for the investor as well as for the third party.
So, for a worker it means higher income, bigger satisfaction from the work, the improvement of the working conditions, and the growth of self-respect.
The employer gets higher productivity, reduces the loss in working time and work efficiency, which eventually leads to higher competitive ability of the firm.
The country gets the improved well-being of the citizens, the growth of the gross revenue and the increased civic engagement.
The whole success of a separate company and the country in general will directly depend on how well and punctually you chose people, who need your investing.
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