More valuable than ever: human capital

Published on 08. May 2019

More valuable than ever: human capital

We want them! We want to keep them! How demographic change challenges companies, when investment in human capital pays off, and why diversity is important in the battle for talent.


The birth rate is falling and there will be fewer and fewer of us in future. Nothing new thus far. But contrary to all forecasts, Germany is growing: at present, almost 83 million people live in Germany – that's the most it’s been since reunification. The birth rate is higher than expected, but it is primarily immigration that has increased, according to the German Federal Agency for Civic Education. How the population develops in the future will depend on the birth rate, life expectancy and on immigration. On the one hand, demographic change is a calculation involving many unknown variables and, on the other hand, it's a so-called megatrend. Globalisation and digitalisation are also members of this family. The debate surrounding demographic change is cause for concern in science, politics and the economy: For example, a 2015 study conducted by management consultants at PwC came to the following conclusion: "Demographic change will see growth ease significantly in large parts of the world from around 2020 onwards”.

Where is all the talent?

Demographic change rhymes (not quite) with shortage of talent. For German companies, talent shortage is more than a spectre on the horizon: The Manpower Group's "2018 Talent Shortage" survey found that 51 percent of the companies they interviewed reported having difficulty filling vacancies. According to the survey, companies are using various strategies to counter the shortage of talent. The leading strategy: 57 percent of decision-makers state that they offer their employees additional further training. "The shortage of talent has reached record levels all across the globe. This means that employers urgently need to rethink their strategy: Instead of just hiring the people they need for now, they should focus their personnel policies on systematically developing talent for today and tomorrow," said Jonas Priesing, Chairman and CEO of Manpower Group.

Investing in people

Investing in "human capital" (also known as human resources or HR for short) is therefore a good idea in times of demographic change. The term refers to the idea put forward by British economist Alfred Marshall in 1890: "the most valuable of all capital is that invested in human beings". Economists Theodore W. Schultz and Gary S. Becker developed the theory of human capital in the early 1960s for which they later received the Nobel Prize in Economics. The experts were concerned with documenting the economic value of employees for the company. Since then, the theory of human capital has seen continuous further development and has been boosted by the debate surrounding demographic change: When companies battle it out for talent, management of human capital becomes important. Talent management is intended to ensure the company's long-term success in human resources work. It controls recruiting, onboarding, retention and personnel development.

Just like Silicon Valley: the battle for talent

Particularly among founders, there is a lot of talk about the "War for Talents" in this context. "In Berlin, Munich, Cologne and Hamburg, we are therefore approaching conditions that Silicon Valley has long since been familiar with," writes Jenny Podewils in an industry article. Digitally savvy employees are also more willing to change jobs: according to a LinkedIn study, 55 percent of workers in Germany are willing to change jobs. The advice from the co-founder of the HR tech start-up Leapsome: Companies should not only focus on optimising user experience for their customers, but also on improving the so-called "employee experience" for their employees. Onboarding and the trial period were among the factors that had a particularly strong influence on employee experience. In this context, Podewils believes it is important to give employees prompt feedback, especially at the beginning. "It clarifies what's already going well and identifies where there's room for improvement". The selection and development of managers as well as continuous feedback are key levers for not only recruiting employees, but also for keeping them at the company for longer.

Little further training for older workers

When it comes to personnel development for older workers, however, HR managers often still act according to the motto "muscle training instead of mental training". Occupational health management measures are the top priority: According to a Statista survey evaluated by the Business Academy of Bonn (BWA), 70 per cent of HR departments are involved in targeted schemes to promote the health of their workforce. On the other hand, less than one third of the respondents offer specific further training measures for older employees. In an interview with Haufe Online as far back as 2015, BWA Managing Director Harald Müller advocated investing in the 50 plus generation: "The resources of older workers can not only be used in a success-oriented way in specialist areas. The social skills of the older generation are also of great importance in team-building processes”.

Managing diversity

Companies can defy demographic change and a shortage of talent if they leave no stone unturned in the search for qualified employees: Accordingly, 42 per cent of the decision-makers surveyed by Manpower stated the expansion of the candidate pool to include older or younger applicants or to include candidates from abroad as a strategy for combating the shortage of talent. The increasing diversity of generations and cultures is the source of another buzzword for HR managers: Diversity Management. In a study conducted by recruitment consultants Page Group, 91.9 percent of respondents stated that they consider diversity management to be important for the global success of their company. Internal successes include better teamwork, a change in corporate culture, and greater employee retention. The list of external successes achieved through diversity management includes greater attractiveness for applicants and a better image.

Promoting a culture of openness

But there’s still work to do: "Bringing a person of a different faith or origin into an otherwise homogeneous team is not enough to generate fresh ideas. New employees need to be supported and encouraged to contribute their different views and ideas. It is important for the company’s management to actively promote a culture of openness," says Goran Barić, Managing Director of Page Group Deutschland. Initiatives such as the Diversity Charter seek to raise awareness of the issue. Since it was founded in 2006, 2,950 companies and institutions have signed the voluntary commitment to promote more diversity – with approximately 3.8 million companies in Germany, there's still some way to go.

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