Employees are not just part of an organization, they should be at the heart of everything you do. Human capital management ensures just that by enabling leaders and HR to strategize their employees’ experiences, creating a better workplace and more productive employees.

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What Is Human Capital Management (HCM)?

Human capital management (HCM) is an organization’s processes and practices used to effectively manage their workforce. HCM focuses on recruiting, managing, developing and optimizing employees to increase productivity and value.

What HCM Includes

There are many different activities that fall under human capital management, all focused on effectively managing employees and increasing productivity.

Recruiting and Hiring

HCM can track and match best-fit candidates to the job, while also streamlining the whole hiring process by keeping the candidates in one place and providing uniform information. Providing uniform information will make the process quicker and clearer by allowing you to compare candidates more accurately.

Onboarding

HCM can provide a systematic and automated onboarding process, making it easier on both the new hire and the employer. It will be easier to track paperwork, check progress and follow up.

Benefits and Retirement Services

There are hundreds of benefits an employer can provide, anywhere from the usual benefits, such as paid time off, to new ideas, such as home-buying assistance. Whatever benefits or retirement services a company may look at, HCM helps them pick the best things they can provide for their employees.

Talent Management

Talent management refers to the whole process of anticipating how many employees a company will need. It can predict expected growth, show how many new hires will be needed, show current candidates in the pipeline, etc.

Reporting and Analytics

HCM tracks many analytics in regards to employees — compensation, attendance, performance reviews, etc. HCM can run reports to help HR and company leaders make informed decisions that will benefit the company and employees equally.

Compensation Planning

This facet of HCM includes budgeting and the administration of compensation plans. It also allows the business to dive into compensation activity and use other HCM tools to calculate the best compensation for its employees.

Performance Management

By creating a standardized process, such as 360 performance reviews or yearly stay meetings, the business can support employees’ individual needs and help optimize their performance.

Why Businesses Need to Think About Human Capital Management

Human capital management is critical to the success of the business because employees are part of every function of the organization. Things such as training or payroll will affect these employees and the work they provide. The needs of employees are constantly changing and businesses need to be able to recognize and adapt accordingly.

  • Make data-driven decisions. The leaders and decision-makers in a business can use human capital management, and the data that often comes with it, to make informed decisions based on data analytics and forecasting.
  • Maximize ROI. HCM can use automated workflows that will reduce certain labor costs and administrative expenses.
  • Attract and retain talent. HCM leads to an increase in hiring speed and quality while also nurturing and retaining the current employees.
  • Optimize workforce management. Employees and leaders can manage time and labor, maintain costs, provide correct compensation rates and build a better workplace culture.
  • Increase employee satisfaction. As you focus on your employees and what is important to them, your employees will be more satisfied. For example, with performance reviews, an employee will better understand their current compensation rate and what they can do to improve it.
  • Drive productivity. Employees will see that their efforts drive certain results and will increase their productivity accordingly. They will also be better-taken care of by the company, which results in happier workers and therefore more productive workers.
  • Respond to change. Businesses need to adjust their workforce according to organizations or change parts of their organization to satisfy workforce demands. Things are constantly changing and human resource management (HRM) can account for these unique changes.

Common Challenges of Human Capital Management

There are many challenges that come with HCM, especially when you’re trying to implement HCM for the first time. HCM is worth any challenges and will bring immense value to an organization. This section goes into some common challenges so that everyone can be prepared for what might come.

Knowing Where to Start

There are so many different parts of HCM that it can be difficult to know where to start. Whether you’re trying to decide what system to invest in or how to transfer all the data, there are a lot of options. Sometimes, the best option is just to pick a spot and get started. As the HCM part of your organization grows, it will develop into what you are looking for.

Redesigning the Organization

If you’re just getting started with HCM, some changes are going to happen. You might have to switch over to a new system or start using resources, which can come with its own challenges. If you end up getting or switching to a new HRIS, it will take extra work to transfer data and train employees on the new system.

Company Culture

If this challenge exists in your workplace, some people consider it the biggest challenge to face. Just as each country has its own culture, each business has its own culture. Each culture comes with pros and cons. Depending on the culture, there may be certain obstacles or norms HR professionals will need to understand. Some negative cultural norms might prevent the success of certain HRM functions and HR professionals will need to find ways to implement changes to company culture.

Retaining Top Talent

Even with HCM in place, many companies still struggle to retain their top-performing employees. This can prove frustrating when an organization is already spending a lot of resources on these top employees and some leaders may begin to question if HCM strategy even works. To help combat this, it is important to look at your company’s top performers and figure out what will make them leave and what will keep them with the company.

Developing Leadership and Talent

While HCM systems can run analytics and show what is successful or not, it won’t actually develop the leadership within your company. Systems cannot do that — other people do that. HCM can be used to implement certain processes that track and allow people to develop others within the company instead of relying on processes.

Creating the Ideas

HCM can provide amazing analytics and predictive data. It does not, however, generate ideas. Ideas come from the employees. Those working with HCM will need to think of ideas and solutions to problems that HCM analytics show exist. How will you fix the attendance issue in certain departments? How will you encourage employee engagement?

Questions You’ve Asked Us About Human Capital Management

Though sometimes used interchangeably, HCM and HRM are actually different. HRM focuses on the administrative tasks regarding people: paperwork, employee records, administration of benefits and compensation, etc. HCM focuses on the strategic functions behind people: performance management, predictive analytics, the processes, etc.
It is a system that combines multiple systems and processes to track all processes and keep records. Often in the workplace, hiring and payroll and analytics are done through different systems. An HCM system will keep them all in one place, allowing for systematic tracking and analytics.
A human capital manager will run the human capital processes within the company. Depending on the size of the company, they will have different roles, but it often involves overseeing all the strategies and delegating the activities that are part of HCM.
Similar to an HCM management system, HCM software is a technology application that can handle many of the processes needed to help employers manage their employees. It is a combination of multiple HR systems that are used to process data and run reports. It often supports a range of functions, from payroll and recruiting to performance management.

Katie is currently studying at BYU, with a HRM major and Statistics minor. She works there as an HR research assistant and also works as an HR Generalist at a local company, and both jobs provide her with a wide variety of experiences. Katie’s passion lies in HR and People Analytics, where she can discover and use data to help everyone understand and improve the workplace for a universal benefit.

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