Written by: Anu Madgavkar is a partner in McKinsey’s New Jersey office.
Human capital is the knowledge, attributes, skills, experience, and health of the workforce, and it accounts for roughly two-thirds of an individual’s total wealth. Right now, people are fundamentally reconsidering what they want to do with their human capital—reassessing how they want to engage with work, who they want to work for, what kind of work they want to do, and on what terms they want to do it. So this is a critical moment for companies to reconsider the way they think about their employees’ human capital.
Typically, companies think about how to deploy human capital to create value for the company. But human capital is really possessed by workers, who are making decisions all the time to augment and enhance their human capital. Being at a company is just part of that journey. So companies that want to retain employees and make the most of their human capital would be wise to focus on human capital from the perspective of the individual. Thinking about how to enrich that individual’s journey can be a more promising frame of reference than thinking about, “How can I profit from these people?”
Our research shows that about half of what people earn during their lifetime is associated with the skills they gain through work. That’s a huge number. A lot of previous research has focused on the value of education, qualifications, and credentials as you enter the workplace. Those are important, but the decisions you make regarding the roles, the jobs, and the skills that you acquire through your work life will drive your earnings. That’s even more true for people who don’t enter the workforce with top credentials. For example, for tile setters or counter workers in the US, the value of the skills they develop at work is more like 65% to 75% of lifetime earnings.
If companies think about themselves as part of that human capital accumulation journey, they’ll change the kind of investments they make in and the opportunities they create for people. There are three key mind shifts to consider.
of the lifetime earnings of some workers lacking top entry-level credentials can be attributed to the skills they acquire on the job
The first shift is for companies to start assessing people based on their potential, not just based on success in their current role. We already know that workers are capable of great learning. New roles in the US typically involve 30% new skills, and workers who are upwardly mobile, who improve their compensation and earnings faster, typically take on roles that demand an average of 40% new skills. But companies often don’t act as if this is the case. Too often, they search for the perfect fit. That’s too bad: you’re not looking for a clone, you’re looking for somebody who has what it takes. Smart companies are already making big investments to assess people for their potential. Some tools are structured to evaluate, say, whether employees have a certain set of necessary tech skills. Others might look at patterns of behavior to assess whether the person is entrepreneurial and capable of stretching beyond their current role.
The second shift is for companies to embrace the idea of mobility. Companies should get on the better side of the change dynamic we’re seeing during the Great Resignation.
We see three ways companies can do this. First, embrace internal mobility. Some companies build the equivalent of a digital talent marketplace, a place where you can see how the skills that you have fit into different career pathways. Some even overlay this with career advisory support to help counsel workers wanting to find good paths to follow.
Second, be open to different kinds of mobility paths. Companies often think about mobility as very linear and vertical. But companies that focus on lateral movement create more opportunities for workers trying to build their human capital. Employees want the flexibility to decide, “Here’s an opportunity for me to learn something, even if it’s not a promotion that involves higher pay.”
Third, companies can embrace people who leave their job just as much as they embrace people who join the team. People who leave a company see a future. They’re investing in becoming great professionals. They could be good business partners, or even potentially a source of talent going forward. The more you celebrate such people the more you position yourself as an employer who helps make employees successful. Such companies become talent magnets.
The third mind shift is to double down on smart learning and training for workers. A lot of companies complain that they don’t see productivity gains commensurate with the amount they spend on training. We think companies need to focus more on learning that’s experience-based, anchored in people’s jobs. Structured training is very important when people need to pick up specific technical skills. But so much of what makes an employee successful is more likely to arise out of mentorship and apprenticeship. Apprenticeship is where employees really learn the soft skills that allow them to use their hard skills in work environments that are, let’s face it, fuzzy and unpredictable. And that, after all, is what we all really value in the human worker, as opposed to a machine.