"Our people are our most valuable asset." Raise your hand if you feel like you are your company's most valuable asset. Yeah, that's about what I thought. Yet you hear that statement all the time, right? It's not that it isn't true, it's justwell it's justwell, what is it?
Michael Echols thinks he knows. He's the director of Bellevue University's Human Capital Lab, and his third book on investing in people, Creating Value with Human Capital Investment, is written to help senior executives change their perspective on the value of the people who work for them. If you work in training and development, you're acutely aware of the need to present your efforts as an investment rather than an expense - strategy rather than tactical response. This book can help.
Echols begins by giving a little lesson in the difference between a tangible and an intangible asset. He lays down the premise that 20th century investments in tangible assets - bricks and mortar, if you like - will not be the key to creating value in the future. A paradigm shift is underway. In fact, it has already taken place. It used to be that the statement of tangible assets on a company's balance sheet was a reliable predictor of that company's capacity to create future value. It isn't so today.
A monumental shift in corporate investment has occurred that our system of accounting fails to reflect. It is a shift from tangible to intangible asset investment. Echols examines investment data to show that 80 to 90 percent of value being created today results from investments in intangible assets that don't appear on the balance sheet. Intangible assets can include investments in training, education, and retention programs - human capital investments.
So how do corporate executives allocate investments when they're knee-deep in shifts? For the most part, says Echols, they've been unable to identify value-creating investments, so they've built up cash and bought back stock from shareholders. But Echols claims there are value-creating investments available now. Why not invest in human capital? Echols thinks that those companies who identify and seize the opportunities for this sort of value-creating investment will be the winners of the future.
He's saying that training is a strategic investment, not an expense. The expenditure on training has to migrate from one side of the balance sheet to the other. That gnashing of teeth you hear comes from business schools across the country.
Companies are already making these investments, says Echols, but they don't subject their performance to the same rigor as tangible asset investments. Nor do they invest with the same confidence, because performance measurement is tricky. Yet you have to invest, for that's where the value is. "In the absence of good methods to manage the expenditures related to intangible assets," says Echols, "senior level executives are expending resources without quality feedback on what is working and what isn't."
We spend $109 billion each year on training and education, and we don't really demand answers to the question, "Is it working?" So Echols has the lab boys working on measurement, among other things, and they have some unique ideas. Return-on-investment can be measured precisely, and in more compelling business and scientific terms than the traditional Phillips ROI method.
This is a great book to have on your shelf if you're in a position to influence training and investment strategy. Training types might find that they have to concentrate when reading it, but lend it out to some of your senior executive MBA decision makers; they'll lap it up.
If Echols is right, then C-level executives who seize on the opportunities for human capital investment have the world by the tail. If the paradigm shift has taken place in how value is created, we now need another shift to develop the confidence to make and measure the investments that will bring value in the next century.