Benefits That Will Encourage SMEs to Invest in Human Capital

Small and medium enterprises (SMEs) are considered the economic pillars in many nations, accounting for 80 per cent of their global economic growth 

In Singapore alone, SMEs contribute to almost half the GDP and employ 70 per cent of the workforce. And this is despite not being as abundant in resources as multinational companies (MNCs) or other established names.

Whether your business is big or small, though, there's no denying the value that employees bring to the table. Human capital can take your organisation places. But what is human capital, and for SMEs with limited capacity to bring in as many talented workers as they want, how else can it benefit them?

Human capital is a key business asset, though it cannot be listed on the balance sheet because it's intangible. It refers to the economic value employees can bring to businesses, such as their skills, experience, and knowledge. Other examples include their health, personal values, creativity, education, and work ethic. 

Companies can leverage human capital to increase their productivity and profitability, so investing in it becomes all the more important. This entails human capital management (HCM) and setting up practices related to workforce acquisition, management, optimisation, and retention. 

HCM attracts, supports, and encourages talents to realise their potential, giving businesses a competitive advantage. However, without the proper assets, SMEs may not even be able to take advantage of human capital.

Human capital as a key contributor to business success is already a fact. Unfortunately, SMEs often encounter recruitment, hiring, and retention issues. Here's where you can put your money to increase the value of your human capital and solve these challenges. 

Issue 1: HR performing multiple tasks SMEs’ HR teams are often small because they can’t always afford to hire more, unlike MNCs. Thus, the existing staff may have to do multiple tasks instead of having one person or a sub-team for each HR function like recruitment, hiring, retention, or employee retention.

You would want to have an HR professional focus on finding the right talent and another one to plan your HCM to help grow your SME’s human capital.

Solution: Strategic hiring Instead of hiring more, SMEs need to hire smart. A few right people with the right qualities are enough to support the function of your business. One way to do strategic hiring is by hearing your upper management's feedback regarding candidates. After all, they understand better from the get-go what the business needs and if the applicants can provide those.

Issue 2: SMEs often get less-than-ideal candidates SMEs have to compete with MNCs in many aspects, and talent acquisition is no different. After all, both businesses look to the same talent pool for the same open role. Understandably, big companies have the upper hand thanks to their name recognition and competitive compensation package.

Solution: Incentives Instead of competing with the compensation MNCs can offer to attract applicants, you can have a unique selling proposition, one of which is offering incentives. Incentives can motivate employees to improve, which in turn increases your SME's human capital, productivity, and retention.

You can base the reward on performance or milestones and offer them as worker benefits or competitive wages. When used correctly, the value of the benefits may well exceed the incentives' actual costs. 

An incentive you can offer is employee assistance programmes like childcare or eldercare. These support their well-being by promoting work-life balance and reducing stress. Another is educational bonuses for those willing to learn more to be more qualified for their or other roles. 

Issue 3: Resources SMEs must be extra strategic with spending. Aside from investing in other aspects of operations, they must also give their existing workforce their salaries while still offering attractive compensation to experienced applicants they want to hire. Naturally, the big names can provide a more lucrative package that you will have difficulty going up against.

Solution: Software and technology Another unique selling proposition that can help with this hiring issue is utilising technology in all your processes. With it, you can assure candidates that they can optimise their jobs, complete tasks faster, minimize errors, and visualise data with accuracy if they choose to work for you. 

Even if you must spend on software or tools, they ultimately are human capital investments as the time saved allows your employees to improve their value.

Issue 4: Career growth and retention Even the most capable employees still want to be trained, promoted, or receive a salary increase. All these are possible if the number of tasks is manageable and they still can train to improve. When they don’t get what they feel they deserve, it can be easy for them to feel frustrated, unmotivated, or burnt out, leading to high turnover rates for your SME.  

Solution: Training and development Training is a way for employees to know the ins and outs of the business and complete their tasks. But it shouldn't stop there. They may want to improve and explore more avenues to aid the organisation to success next.

Development, including upskilling, coaching, and wellness benefits, means investing in your employees' performance, personal growth, and well-being. The effects of human capital development on SMEs are worthwhile, as workers get to perform better and more sustainably to meet company goals.

A good example is funding scholarships. Continuing education is a long-term human capital investment as it opens up access to higher education workers may require to further their careers and increase their value.

Here are a few effects of human capital development on SMEs to further convince you to invest in your people.

Find future business drivers. Human capital investment will help you spot your new leaders. When workers are not just focused on their tasks and have time to develop, they have space to do more to drive business results by performing well, supporting their colleagues, and solving current and potential problems. 

Improve communication and collaboration. Hiring people who know how or can develop the skill to communicate and collaborate allows for a smoother flow of information regarding business goals and how to achieve them. Working together toward those goals becomes easier. 

Promote a positive work environment. Investing in human capital makes for a great workplace because employees are happy to work for a company that cares for them in a holistic sense—they have the tools to help with their tasks, have opportunities to improve, and enjoy perks that enhance their well-being.

Boost retention rate. When employees love what they do, they stay, and one way to make them stay is by investing in them. Take care of them by making their jobs easier, helping them develop, and giving rewards when warranted. Ensure that you also listen to their issues and recommendations to make them feel valued further.

The retention rate through human capital development is especially notable when you consider that Gen Z will dominate the workforce by 2025. For this generation, money isn't enough to attract and retain them, but having team leads or managers who can act as mentors or coaches can. They value development and need someone to show them their blind spots and what to improve on, not just someone that will tell them what to do.

For more insights on what Gen Z expects from the workplace, What Jobseekers Wish Employers Knew, a report on the future of recruitment by JobStreet, the Boston Consulting Group, and The Network.

Develop a diverse workforce. With happy employees, it becomes easier for you to attract new ones. Each new employee is different in their skills, knowledge, and experiences that can add to the value of your human capital. This diversity fosters different ideas and ways to solve problems. Other than that, it improves your business's cultural awareness.

Enhance customer management. Your clients can tell if your employees are happy with their work or if something is wrong. Naturally, they will be pleasant to work with if they are satisfied, which can improve the results of their client transactions. In turn, clients will be confident in doing business with you.

Employers often say employees are their biggest assets. While it's not debatable, some organisations need to put their money where their mouths are—specifically, in taking care of their workers holistically. 

Read other ways to improve the value of your workers by visiting our Employers Insights page. Register to JobStreet now and find candidates who can help grow your SME.