Performance through people: Transforming human capital into competitive advantage

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A dual focus on developing people and managing them well gives a select group of companies a long-term performance edge.

When companies emphasize skill development, it pays off for workers. Skills learned on the job contribute 46 percent of the average person’s lifetime earnings, and companies that build human capital are more likely to propel their employees into higher earnings brackets over the course of a career.Building human capital also pays off for firms in the form of more consistent earnings and greater resilience during crisis. In addition to being more consistent than their sector peers, human capital builders are better at retaining talent, with attrition rates that are about 5 percentage points lower.Some firms (“People + Performance Winners”) prioritize developing their employees and manage to deliver top-tier profitability at the same time. These companies are more likely to become large-scale “superstars.” They exist in all sectors and average more than $1 billion in economic profit.

People + Performance Winners have a distinctive organizational signature that challenges and empowers employees while fostering bottom-up innovation. This form of organizational capital contrasts with that of other top-performing firms, which tend to be more top-performing firms, which tend to be more top-down and transactional. This management style seems to activate human capital and create a tangible competitive advantage.down and transactional. This management style seems to activate human capital and create a tangible competitive advantage.

 

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