The way of reducing the risk when investing on human resources

Dilemma about educational investment in your employees
Although human resources are a part of management resources, they clearly have a different aspect from other resources such as capital and equipment.

Firstly, employees are not commodities in the sense that the neoclassical school defines. This is because every person has different characteristics and market transaction works well for homogeneous goods and services.

Secondly, in the case of employees, uninterrupted and additional investment is more important relatively to other management resources such as machines since training and education can have a major impact on the performance of employees.

Thirdly, there are some difficulties when trying to hire a replacement when someone resigns or retires. Generally speaking, it is usually not so easy to get one specialist to replace another, which is why most big businesses in Japan train and educate their staff and lifetime employment prevails here. They believe they can not buy key employees, but nurture and develop those they have.

However, when it comes to small and medium businesses (SMEs) lifetime employment is not so widespread compared with big businesses and thereby SMEs are reluctant to invest in their employees. This is because the rate of turnover at SMEs is higher than that of big corporations. For example, the mean length of service of a 50-54 years old employees is 28.1 years in the case of firms with 1000 or more on the payroll. On the other hand that of firms with 10 to 99 employees on the payroll is only 16.0 years according to the Ministry of Health, Labor and Welfare.

Recently surveys and research have shown the positive relationship between educational investment and employees’ performance, but many SMEs are still reluctant to follow big businesses even though SMEs acknowledge the importance and necessity of investing in their staff. Owners of small businesses lose their investment if employees quit after they have been trained.

You can not buy core staff
The length of service at SMEs is short compared with that at big businesses, and the probability of changing one's employment is also very high, so that the risk to develop employees is also high.

However, it is also difficult for SMEs to secure excellent, talented people from the beginning. Therefore, they must raise key employees inside to survive competition. How can SMEs fight against this inconsistency?

There are three ways to handle this. The first choice is not to invest in human resources at all. The second choice is to invest without the fruit of investment: employees enjoy training courses and move to a new employer promising higher pay immediately after training ends. The third one is ideal and should be pursued: SMEs bear investment cost and enjoy its benefit.

When you increase the amount of investment the degree of risk increases. However, the degree of effectiveness also could improve.

If you can control the relationship between investment and risk, you just enjoy the relationship between investment and its effectiveness. Therefore, pursuing the third way is bes, even though it is the most challenging.

My critical asset is you

Alpha Aviation, with headquarters in Tokyo, is known as the leading company in Japan for training helicopter pilots.

Alpha Aviation is involved in a number of different operations as well: aerial photography, salling Robinson's helicopters, and training light airplane pilots.

President Shizuka Saito had never flown solo until she established her company 20 years ago. During this time she has built the most competitive company in this niche market by emphasizing human resource development.

Whenever the number of helicopter or light airplane models increases, additional training and licenses are required. That means that in order to improve and expand the business, Alpha Aviation must invest considerable resources on mechanics and pilots. Of course there is always the risk that they will change jobs after receiving the training.

Alpha Aviation is proud of 20 consecutive accident-free years and due to this perfect track record, it has been commended by RHC. This fact illustrates that Saito's company bears investment cost, but enjoys its benefits also.

How does she succeed in this? Saito distinguishes herself from other companies by investing most of her profits back into her employees, training and developing them. She has declared that her employees are her most valuable company asset.

There are two main tips that result in no reassignment. Firstly, Saito talks to the employee who will participate in the training program about company policy, the importance of this training and her expectations in regard to the employee before going ahead with the training. However, after the training starts, she stops advising and just observes, placing her trust in that person. Secondly, she keeps in mind the possibility of jealousy and friction among employees. Shizuka says to a mechanic or a pilot, "Since the marketing section does its best, there is your work", and "a helicopter can fly safely due to safety-minded mechanics" is said to a pilot, and "Marketing would be more difficult without superior mechanics and pilots at my company" is said to the marketing section. She insists that no one is dispensable at her company and that everyone support everyone else.
Shizuka Saito believes in creating a positive, supportive ambience at her company, training and developing her staff and encouraging them to "reach for the stars". In return, she enjoys a low staff turnover and the staff's trust and loyalty.

Noriyuki Takahashi
Faculty of Economics
Musashi University


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