are your investments truly investments, or merely costs?

are your investments truly investments, or merely costs?

know your costs and your investments

Still, we often use ‘cost’ and ‘investment’ interchangeably, but why? To bookkeepers they may be the same; they generally both fall under liabilities on a balance sheet. True businesspeople understand the difference in weight between costs and investments, beyond frequency, duration and expected outcomes.

In this blog I will emphasise the emotional connection to investments and lack of emotional connection to costs. The fact of the matter is, we tend to care about our investments and want to enhance them, we tend to accept our costs and generally try to reduce them. Costs and investments our both critical to our business’ success, so how do they interact? Costs keep the lights on (literally), they keep the business running; investments allow the business to grow.

what does it cost?

A common question we all use, possibly daily. As buyers we often ask for a price or cost of a product or service before we buy. When we are looking for a new couch, car or squash racket a salesperson may try to sway us to a purchase by stating the couch, car or racket is a true investment in our life. That salesperson may be correct, but only when we truly care about the purchase and the role it plays in our life moving forward. If you are purchasing a car purely for commuting and picking up groceries, your car is in fact a tool which serves a purpose to maintain your life, you will most likely see the purchase as a cost. If you are a car enthusiast and love to take the car for a drive every chance you get, you are more likely to see this as a good investment to enhance your life.

Understanding the difference between costs and investments is crucial in our businesses, and perhaps even our lives. Our view on cost or investment determines our approach, care and involvement. We are generally personally involved in our investments; we tend to care about them and keep a finger on the pulse on how our investments are moving over time. We are significantly less involved with our cost, these are necessary expenses and we only care about them, when we do not receive the product or service we pay for. A good example is our power bill, we never question the quality of our electricity; all we care about is that it is available when we need it.

how invested should we be?

Most, if not all, personnel expensed are recorded under ‘liabilities’ on our balance sheets. Whether these expenses remain a liability, or become an asset, depends on our personal interest and investment of time in our people. Payroll, for instance, is it a cost or an investment? It can be argued payroll is a cost, it is necessary to keep the business in motion. Payroll may be no different than other business expenses like accounting or legal services, taxes, rent and utility payments. On a balance sheet they all fall under liabilities.

Let’s move away from the balance sheet, and look at our attitude towards investments. People who buy shares generally keep an eye on the stock market. A simple example, but we all do it. We invest in our children, we invest in causes we believe in. Every investment comes with expectations and we tend to care about the progress or outcome; we are personally committed. Our personal commitment can be beneficial, as we can truly nurture our investments and adapt them to our changing environments. Like so many things in life we can set this out in a bell-curve. No or little involvement, will see your investment turn into a cost and it may be on the chopping block in the next cost-cutting exercise. Too much investment may smother the natural growth, or on the other side, may prevent you from pulling out off a bad investment, or an investment that has turned bad. When we find ourselves at the top of the bell-curve we have enough personal involvement to influence the investment, keep it going and growing. We maintain an objective view, to identify changing environments where the investment will no longer be viable.

what about our people development?

Let’s have another look at our people related expenses in our businesses. We want our businesses to grow, in quality and perhaps even quantity. Our people make our businesses grow, investing in our business means investing in our people. Again, a simple approach, but one that is often overlooked, ignored or denied. Do we truly invest in our people, or do we send them on token training courses, so we are seen to invest in people? If this is our approach, our expenses will be costs. We have no expectations of development, we have no personal involvement and lack commitment to future success.

Business who truly invest in their people, show constant commitment to their personal and their people’s growth. They have set an nX (‘n’ times the return on investment) and keep a finger on the pulse to track how their investments are progressing. Investments are driven from an operational and perhaps strategic perspective; they help the organisation achieve its long-term goals. Herein lies the difference between success and compliance and the two forms of professional development; one form focuses on compliance, the other on growth.

The form which focuses on compliance is important; this kind of professional development will keep your organisation aligned with industry standards. It tends to make sure our procedures and processes are correct and transparent. We can even group industry specific CPD under compliance. CPD is the bare minimum, keeping us abreast with changes in our industry and in pace with our competition. Compliance training and development is prescriptive, it does not require any creative involvement from our organisations. A small orphan team can keep track of standards and nominate personnel for compliance, update or upgrade training. I deliberately refer to this team as an orphan team, as it does not have a true parent and the closest stepparent is corporate governance. Yet, we tend to find these teams in HR – perhaps under an L&D umbrella – where they are correctly referred to as cost.

The form which focuses on growth, will make our businesses stand out and take a step ahead of your competition. This form of professional development is essential to become, or stay, an industry leader. The foundation for this professional development can be found in strategic long-term goals. There is a direct operational link, and the embodiment of this kind of development requires a skilled, creative team. This team has a clear operational parent, but we tend to find these teams in HR, again, perhaps under an L&D umbrella. The obvious risk is the delinking from operational priorities, and the reduction to generic compliance training.

investing is a personal commitment.

We need to keep our investments close; we can outsource the leg-work to a trusted advisor, but we need to keep a personal finger on the pulse. Successful businesses do just that. Their leaders are personally involved in investing into the future of their organisation. It takes time to understand strategic priorities, turn them into operational requirements and professional development opportunities. Leaders have a trusted advisor to help hem turn strategy into action and achievements, but they are personally committed to track progress against expectations: they personally care.

We look after our investments, therefore we look after our people. When we create opportunities for them to develop, we need to make sure we keep a finger on the pulse. Not purely to track their development, but also to stay in touch ourselves. Development relies on learning, not just training. We will address the learning and training in a separate post.

How involved are you with the development of your people? Are you part of their learning?

Let’s discuss this further..

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