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Investing in people is like investing in anything, we all want the best ROI

KPMG's Mark Essex
By Mark Essex

In the struggle for talent, some of your competitors might prefer to poach your staff rather than coach their own. And if one of your best people is seduced by a golden hello from a rival, you’d be forgiven for looking again at how much you invest in your staff. Of course, it won’t be long before someone comes out with the cliché: “What if you train them and they leave? What if you don’t and they stay?”

I hear a lot of employers saying the right thing, “Of course we invest in our staff”. But I can’t help thinking that maybe they’d invest more if their return was safer. Put it another way, no-one would pay to install a conservatory on a rented house if they only had a six-month short-term tenancy.

As I watch the World Cup, it occurs to me that football clubs don’t have this problem. They run academies and spend enormous sums developing future talent. But when one of their players is poached, the club gets paid a transfer fee. No wonder they invest with confidence!

But without a way to create a balance sheet benefit of the training investment, other employers investing in training are either being altruistic or inefficient; they are investing across a portfolio, accepting a high default rate (people who leave before they’ve done the tour of duty needed to recoup the investment).

How do we get a better return on investment (ROI)? Let’s apply the levers we use to improve financial investments: There are decades of research into what good looks like. What does it take to improve the return on a financial investment?

- Reduce upfront cash outlay
- Or spend it later
- Increase rate of flow of return, make it earlier
- Keep it longer (assuming it’s spinning off cash)
- Get better sale proceeds for your investments
- Reduce failure rate, i.e. increase the number of investments which succeed/make a return

Now look at those same actions from a skills perspective:

- Reduce cost of skills provision (or use otherwise sunk costs such as the apprenticeship levy to fund)
- Spread the cost over time (lifelong learning, not providing all your training at the front of the career)
- Increase return, so make people more productive, more quickly, reduce downtime (augment with tech?)
- Keep your productive people longer
- Get better sale proceeds. Maybe one day we might see transfer fees for talented executives…or mechanisms to require the new employer to buy out training clawbacks.
- Reduce failure rate. Reduce the number of people you “mis-recruit” who leave before they add value

I think, when reviewing your portfolio, it’s worth taking a look at one of your most important asset classes, your talent, and start to think about which of these levers you can flex to improve the return.

In one respect, family businesses have a distinct advantage: they tend to keep people longer – potentially for decades. Why? Family businesses differentiate themselves with their strong sense of purpose. Having a longer-term perspective on environmental, social and governance issues has been in the DNA of family businesses long before the rest of the world grouped these things together into ESG. And that commitment to a strong purpose in turn helps to attract the next generation of employees who value this attribute more.

Other levers such as training investment need to receive the same attention. How much are you investing in the next generation of leaders?

At a conference recently, the audience was asked: Is giving your grandaughter a large sum to fund her pet project an investment or speculation? That’s easy: however the project turns out, they will learn valuable lessons. Perhaps one day, that experience will be pivotal in making the right call about a material decision. So while you enjoy watching the skill, flair and talent on display at the world cup, consider how much you are investing in your next generation of leaders.

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