Five lessons about human capital

Simon Desjardins

 The idea of a social enterprise investing heavily in human capital as a prerequisite for growth is not controversial or even new. In fact, it seems so obvious that few would question it. It is surprising, though, how rarely we see it actually being practised. Early‑stage social enterprises in particular often cannot invest in the kind of world‑class talent they need to validate their business models and technologies. Looking back across our work with pioneering entrepreneurs over the last 15 years, we see five strong lessons emerging related to human capital that inform our strategy today.

1 From a reactive activity to the core focus of the CEO

Without exception, the social enterprises that have become leaders in their respective subsectors treat finding, selecting and managing their human capital as their top priority. The CEOs of these organizations spend more time on HR than on any other activity, in some cases by a wide margin.

HIRING AS A PRIORITY AT INTELLEGROW

IntelleGrow provides debt financing to early stage enterprises serving low‑income communities in India, without requiring collateral as a prerequisite to lend.

‘I currently spend 40 per cent of my time attracting new talent to the company and managing existing talent, which still isn’t sufficient. After closing a few key hires this year, I will be able to increase that to 60 per cent. We are always hiring, even when we don’t have formal vacancies. If I find a high‑potential candidate, we will simply find a role for them in the organization.’

Sanjib Jha, CEO, IntelleGrow

2 You get what you pay for

Though most recognize the importance of building a world‑class team, few are prepared to pay for it. In many quarters, it is still assumed that because an enterprise has a social objective, its compensation levels can and should be below market. Often, this assumption comes from the investors, who are unwilling to approve market‑rate compensation packages. In some regions (especially Africa, where there is often a shortage of trained professionals), investors and even some entrepreneurs will balk at the idea of paying a sales manager, for example, a market‑related salary and typically opt for someone with a lesser track record. Time and again, we have seen this decision backfire and result in lost time and wasted money.

HR compensation assumptions and realities

Assumption Reality
World‑class talent can be sustainably recruited at below market rates.  World‑class talent requires market‑level or above‑market compensation packages. 
The compensation benchmark is other social enterprises.  The benchmark is other mainstream companies. 
Nobody can earn more than the CEO.  Appropriate compensation packages may require variable pay that ultimately leads to compensation levels greater than the CEO’s. Bonuses linked to performance are also important incentives. 
Employees will learn on the job.  Enterprises need to invest heavily in training and talent development, particularly for junior and mid‑level employees. 
Compensation should be set only by seniority within the organization  Compensation can be disproportionately affected by geography, especially in talent‑scarce locations. 

 

What this means is that entrepreneurs and their investors/donors need to radically revise their assumptions about HR spend.

3 Stepping into the abyss

Moving from validation (when an enterprise proves that its technology and business model can work, at least locally) to scale typically requires a heavy investment in human capital. This is a difficult proposition for entrepreneurs and investors alike. With profitability in sight, it is not always an intuitive or easy decision to make compensation commitments that will lead to a dip further into losses. We have seen, and continue to see, the importance of investing in world‑class management teams as the core building block required to go to scale. Shell Foundation partners are at different stages of the process, but share the same philosophy on this subject.

4 Upstream talent: skills building and leadership development

One challenge facing energy enterprises in particular is that the skills required at the junior level are unavailable at the volumes required to reach scale. This is particularly true with enterprises operating in rural areas or those requiring technical skills. Husk Power Systems, for example, an enterprise that generates low‑cost electricity from waste agricultural residue, has had to invest heavily in its own in‑house training programme to build the skills required for its junior staff before they are deployed in the field. The demand for this type of training is so significant that the former head of training at Husk Power, Rama Siva, left the company to establish an energy skills development company called Anthropower, which is building customized curricula for energy enterprises and has provided training to over 500 people.

For Dharma Life (a social enterprise that enhances livelihoods and generates employment by creating new channels for low‑income communities in rural India to access basic goods and services), the lack of skilled salespeople in rural India formed part of the genesis of the company. Dharma has had to develop its own in‑house training programmes for its junior sales staff because no third‑party organization could provide this. ‘Investing in basic sales training is highly resource‑intensive, but there’s no way around it,’ says Dharma founder Gaurav Mehta.

Hiring high‑potential, mid‑level talent presents its own challenges. Despite social enterprises becoming increasingly appealing career options for young professionals, it is difficult to match talent with opportunity, particularly with a global talent pool. High‑potential, early‑career professionals currently have few opportunities to gain practical experience in the social enterprise sector. Equally, social enterprises are constrained by the difficulty in finding appropriately skilled individuals willing to work in emerging markets.

In 2013 Shell Foundation co‑created Impact Business Leaders, a leadership development organization that combines intensive practitioner‑led training with one‑year work placements with leading social enterprises and impact investors. This model provides the hiring organization with a pre‑vetted pool of high‑potential candidates, and provides the candidates with a foot in the door into the sector, typically with the prospect of a full‑time role after the initial placement.

5 Traditional thirdparty recruiters: a dying breed

For want of time and resources, organizations often rely on recruitment consultants. The trouble is, these consultants tend to be expensive and unreliable. The networks they use to source junior to mid‑level candidates increasingly tend to be publicly available, while the nascent character of the sector often means they don’t know how to effectively pitch the idea of a social enterprise to potential candidates. Candidates often show up for interviews not knowing whether they are applying to join a charity or a business. New recruitment solutions are needed to solve this important and growing problem.

A need for new solutions

The human capital sector clearly needs increased attention from entrepreneurs and funders alike. During a recent analysis of our work in access to energy over the last decade, we were struck by how common many of the human capital challenges are, and we are actively exploring new potential disruptive innovations in this area. We find that partial and time‑bound subsidy support specifically to enable enterprises to hire appropriate senior talent is an effective use of philanthropic capital to help enterprises move through the critical validation phase of their growth.

We see an increasing need for new intermediaries that can tackle these human capital challenges in scalable ways – dedicated organizations that can deliver more effective solutions to talent acquisition, as well as new organizations that match existing talent with market opportunities. Given the potential for wider catalytic impact on multiple sectors and geographies, the philanthropic community is especially well placed to support innovation in this area.

TALENT MATCHING AT IMPACT BUSINESS LEADERS

‘There is an overwhelming interest from leading social enterprises and corporates to pay for high‑potential talent, especially local talent, though they often don’t have the networks and resources to source it. Equally, young professionals have limited ways to break into the sector.’

David Kyle, cofounder and director, Impact Business Leaders

INVESTING IN HUMAN CAPITAL AT D.LIGHT

d.light designs and distributes solar lighting products to low‑income consumers around the world.

‘d.light is creating a new, large‑scale private sector market that enables access to modern energy for some of the world’s most difficult‑to‑reach customers. This has required a massive investment in executive leadership, middle management and staff – far ahead of desired results or foreseeable problems. Despite these challenges, our mission and “company culture” have attracted tremendously talented, experienced people at all levels. Even then, we expect to make a significant ongoing investment in our people – our most important asset.’

Donn Tice, chairman and CEO, d.light

Simon Desjardins is a programme manager at Shell Foundation. Email

Simon.Desjardins@shell.com


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