Human Capital: The Most Important Investment

My day job is the CEO of a start-up, and through that role I’ve had the opportunity to engage with a lot of very smart business leaders and investors. In our conversations the nature of investment has come up many times, with the critical question being: do investors invest in companies, or in people?

My experience has shown me that people are companies; it is the talent, imagination, and hard work of a team that make a company successful. A company is simply a legal and economic structure to organize the people within it. Every company begins with an idea generated by a person, and then a team of people work to implement that idea. Ultimately, investors are investing in people, not companies, so as investors looking to make the maximum return, the quality of human capital should be the central concern. Successful businesses  pull together a stellar team who will ensure investment pays off and who share the vision of the organization they have helped build; in return they are compensated for the value they add. That is the heart of an employment relationship.

I think this model is particularly important to MR; all the data in the world is worthless without people to develop the models, package it, analyze it, and tell clients what it means. That is simply the nature of the business intelligence industry; it is as much art as it is a science, and all the technology advancements we tend to get excited about won’t replace the need for talented people to make use of the data to drive strategic value.

I think the issue of the role of human capital investment is one of paramount importance to MR since we tend to get caught up in the “how” vs. the “who” and “why”. This singleness of focus is somewhat endemic in the broad industry, with some exceptions of course. I ran across an interesting article via LinkedIn on the Harvard Business Review: How to Challenge Your Industry Dogma that might be useful for us all to think about. There are a couple of key points made in it:

It’s kind of like air. Invisible but omnipresent, every industry, market, and sector has a dogma — “a doctrine or code of beliefs accepted as authoritative.” “This is just how things are done,” dogma whispers, every second of every day, to every decision-maker in every boardroom.

What does it mean to be a revolutionary? To challenge an existing dogma, instead of complying with it: to reject its tenets, highlight its flaws and improve each of its shortcomings.

What makes Apple so revolutionary? Why is it able to disrupt industry after industry, and topple the mightiest of incumbents? Steve Jobs is, from an organizational perspective, more Che Guevara than Jack Welch: he’s always challenging dogma, instead of complying with it. Apple’s rivals, like most companies, do exactly the opposite: “this is how things are done,” they think — and then try to do it harder.

The author then goes on to outline six ways to challenge dogma:

1. Challenge products
2. Challenge strategy
3. Challenge distribution
4. Challenge business models
5. Challenge sales and service
6. Challenge production

Each of those business functions is comprised of people, so in order to drive innovation and change, to “challenge the dogma” of  MR, and to reap the rewards from a business standpoint human capital must be one of the core investment strategies of each company.At least that is my take; what is yours?