Question: How can I get the associates at my business more engaged and productive so they will better serve our customers?

 Answer: Companies are now facing a range of urgent human capital challenges. Workforce productivity has remained stubbornly stagnant over the last decade. Unemployment that is near historic lows is making it much harder to attract and retain top talent.  Also, political and social pressures are growing to address diversity, gender pay equity, and the wages of the rank-and-file employees, particularly in low-paying industries like retail and hospitality.

 The appropriate response is that businesses make smart human capital investments that can yield a high return. Such investments might take one of several forms:

•            Improved training and cross-training

•            More thoughtful recruiting

•            Greater emphasis on development and internal promotion

•            Improved scheduling systems to provide employees more predictability and advance notice

•            Switching to more full-time employees

•            Raising pay to retain valuable talent.

These investments will help to more fully engage employees and make them more productive, thus increasing their value.  It can also help secure needed talent now and into the future. This contention is supported by recent research which has shown that human capital investments, when coupled with business process changes, can lead to improved employee performance, higher levels of customer satisfaction, and in turn, better financial performance.

 Zeynep Ton of MIT has recently spearheaded research into this topic. She demonstrates the benefits of investment in employees with her research at Costco, Trader Joe’s, Mercadona, Quicktrip, and several other companies. She found that human capital investment, combined with the right operational strategies (e.g., focus and simplification, standardization and employee empowerment, cross-training, and operating with slack), raises productivity, reduces turnover, reduces costs, maximizes profits, and improves returns.

Ms. Ton notes that the companies she has studied also often reward individuals more through higher wages, as well as using more full-time people who are frequently promoted from within. Companies pay more in some cases to protect their investments and also because more fully engaged full-time employees enable the companies to make needed changes to business processes.

Some businesses might worry that investments in employees that include higher pay would invariably hurt earnings. The evidence is otherwise, so long as companies raise wages as well as make other changes to improve employee performance. To get some idea of the relationship between higher pay and performance, my consulting firm took a look at companies in a traditionally low-paying, low-margin industry like retailing.

We could not find evidence that companies paying more hurt financial performance. In fact, we found that the higher-paying companies, on average, outperformed lower-paying companies in sales growth, margins, earnings growth, and total shareholder returns. The assumption is that the profitable results stemmed from employees’ increased value and productivity resulting from changes like those suggested by Ms. Ton.

With unemployment levels dipping below 3 percent in many regions, we believe that human-capital management may increasingly be the element of strategy that makes all the difference in a once-in-a-lifetime economy.

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About the Author: Seymour Burchman is a Managing Director at Semler Brossy Consulting Group and can be reached at sburchman@semlerbrossy.com. Mr. Burchman is also a volunteer with the Naples Chapter of SCORE that offers free and confidential counseling to small businesses. To register, call 239-430-0081 or visit http://naples.score.org/mentors. A counselor will contact you within 48 hours. Please include your name, email address, and contact phone number.