May 19, 2020

Human Capital: A Smart Investment

money matters
tina samuels
human capital
Bizclik Editor
5 min
Human Capital: A Smart Investment

The July edition of The Business Review USA is now live!

By: Tina Samuels 

When people talk about capital, they're usually referring to goods that help a service or company deliver on their product. Capital can be money, durable goods, or even people. A company cannot make progress without employees. Employees are the heart of a business, without them there's no way that any product or service will reach the consumer.

The definition of human capital can be summarized as the collective of knowledge and skills possessed by employees. This is a basic definition that encompasses a larger aspect of what an employee is truly worth in relation to the company. Not counting personal loyalty to the company, in pragmatic terms it must be considered the actual knowledge, skills, and expertise of any employee.

Investing In Human Capital

When we speak of investing in human capital they mean hiring, training, and nurturing employees. Imagine a company as a garden. The business plan designs the plot, setting up an office tills the soil, and hiring quality employees is planting seeds. To get the most return or harvest, these seeds must be fertilized, and then cared for. Gardeners do not walk away from their plots and just hope for the best. This encourages growth of weeds, choking out the fruitful plants.

The job of human resources or managers is to cultivate and nurture these employees. Create a bountiful harvest of expertise among employees. This can be done through various methods. First, offer training to new employees. Second, once employees have finished their training, partner them with experienced employees to learn the ropes. By working in a team with established employees that have a good record, the new staff member learns the ins and outs of their job. Partnering with a ‘good citizen’ staff member can impress the good qualities of that veteran staff member on the new one.

Increasing the level of education for employees is another key strategy to improving the worth of your human capital. Some employers offer training programs during the year for their workers. This increases the knowledge of the job. But what if your employees want to progress up the career ladder? Other employers offer incentives for staff that take college courses in their field. Some go as far as paying for the courses. While you can't ensure that the employee will stay with your company forever, you can have the employees that enter employer-paid college course programs sign a contract. These contracts usually stipulate that the employee will continue to work for the employer for a set period of time after earning their degree.

Encouraging your employees with career building courses, on site training, and rewards for good work can go a long way to nurturing your human capital.

Why Is It Important?

Human capital is important because without employees a business would grind to a halt. While independent contractors or single person businesses do well, for companies that rely on employees, without human capital they would go bankrupt. If a company cannot supply their services or products, where will their profit come from?

Employees are the backbone and the life-blood of business. For countries where there is a lot of people - through immigration or by birth - human capital is the most important product. This human capital can be made more lucrative by the government helping ensure the education of all citizens. When human capital has a high worth the country increases its standard of living and also the gross domestic product. Being competitive globally can only be accomplished through increasing the worth of a resource's like human capital. The United Nations publishes a report annually on human development in nations around the world. This reports covers life expectancy, health, and education.

This is the same for businesses. Investing in the human capital element will increase the worth of a business. When employees are well educated or well trained, they consistently provide better production results. This can mean a more efficient production or a higher quality of work.

On a grand scale, human capital is important not only to business, but to the world. As people rely on technology, their knowledge can increase the items used to make lives easier. Technology and the sciences can enrich lives in countries where basic survival is difficult. By investing in the people who need education the most, their lives are improved, their countries gain ground in the global market, and at the very basis of this aspect – less people die from preventable disease or starvation. More people are added to the global bank of human capital.

No matter what the need, business or global, human capital is a driving force behind every economy. It just isn't possible to have any market in any form without people working on it. Recently there have been efforts to link education and human capital data together by linking unemployment data with student loan data in the United States. This is said to help find the problems behind mismatching of employers to employees. The data may point to human capital being too specific in job skills, creating a job to education mismatch in the market.

One interesting note is that Karl Marx spoke of human capital long before today's market existed. Marx believed that the only way human capital could have an increased 'worth' was to have an excess or surplus value. This means that a person would need to outwork others in his job or field to continue to have a large worth to his employer. 

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Jun 8, 2021

Six issues at the top of tax and finance leaders’ agenda

Kate Birch
4 min
As businesses accelerate their transformation journeys, tax leaders are under increasing pressure to add strategic value. Deloitte reveals six tax trends

New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.

According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.

And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.

Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.

Trend 1: Businesses seek more strategic counsel from tax

Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.

According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”

Trend 2: Tipping point for resourcing models

Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.

Trend 3: Digital tax administration is moving faster than expected

in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.

"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."

Trend 4: Data simplification and lower-cost resourcing are top priorities

Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.

At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”

Trend 5: Skillsets are shifting

Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.

Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact 

Trend 6: 2020 brought productivity improvements

Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.

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