Do you know what the ROI is on your Human Capital?
If the Answer is No … Why Not?
Do you think your Human Capital is your most important asset?
If you do, understanding how your investment in your employees translates into financial returns is crucial. This is what we refer to as Human Capital ROI.
Human Capital ROI, is a measure that enables you to comprehend the financial impact of your workforce. In simpler terms, it’s a way to determine the financial contributions your employees are contributing to your business every month.
Do you know how your Human Capital’s efficiency and effectiveness rates impact your quarterly profit levels?
Did you know that every company’s quarterly profits are understated and not realized by 30+% due to the low ROI on their Human Capital expenditures?
This significant financial loss should create a sense of urgency to address this crucial issue as soon as possible, since it directly impacts your company’s monthly and quarterly bottom line. However, today, it is a back-burner concern.
Do you know how many profit dollars your company does not realize every month and every quarter? If you Don’t … Why not?
If you consider your Human Capital to be the most important asset in the company, and the largest expenditure on your income statement. What plans are you considering to ensure you do not leave any unrealized quarterly profits on the cutting room floor?
Simply put, your Human Capital is underperforming every month and quarter. This underperformance also causes a negative effect on the customers you serve.
The untold truth is that the ROI on Human Capital in every organization and its teams is currently less than 50%. However, this also means there’s a significant potential for improvement. This potential should inspire hope and optimism in your business’s future growth rate, as it signifies that there are untapped opportunities for your company’s financial performance.
For example, if you gave the bank a million dollars to invest, you would expect an increase in that investment. If your million dollars were invested in fixed income at a 5% return, the result would be $1,050,000 after one year.
However, if you invested the same million dollars in your Human Capital, your most important asset. In this case, your return on investment for the $1,000,000 is $495,000; in other words, you have lost $505,000 in performance effectiveness, efficiency, and results.
There is no logical business or financial justification for this type of investment. Unfortunately, this is the financial investment you’re experiencing today. For example, Kroger spent $26.3 billion on their Human Capital investments. Kroger’s full-year 2023 ROI on this $26.3 billion investment was only $13.1 billion. This massive investment resulted in a $13.2 billion loss of performance, efficiency, productivity, and financial results.
Understanding the ROI on your Human-Capital is a journey of discovery; that is, understanding what you don’t know and you, as a leader, play a crucial role in it.
The first step is realizing that there are factors you don’t know or understand. Once you acknowledge this lack of understanding, you can now begin to take the appropriate steps to improve and increase the ROI on your Human Capital.
For example, if Kroger increased their ROI on their Human Capital by a minimum of 5%, it would represent $1.3 billion of incremental profit for FY2023 or a 42% increase in their reported profits.
Lastly, this 42% improvement in profit will substantially impact the company’s earnings per share for its shareholders. By increasing your workforce’s efficiency, effectiveness, and performance capability, you boost your profits and significantly enhance your company’s shareholder value.
REMEMBER … YOUR HUMAN CAPITAL DEFINES WHO YOU ARE AND YOUR MONTHLY AND QUARTERLY PERFORMANCE LEVELS!!!
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