In the field of HR, you may have heard discussions about human capital management vs human resource management. While these concepts are similar and overlap in many ways, it’s important to understand the distinctions.
When you know the difference between the two approaches, you can select the one that’s best for your organization — or use a combination of elements from both areas to benefit your business.
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What is Human Capital Management (HCM)?
Human capital management is a relatively new way of thinking about employees. While the field of human resources has been around for over 100 years, the phrase human capital emerged in the 1960s during an age of automation. Instead of looking at workers as expendable people who just completed the low-level tasks a business assigned to them, companies began viewing employees as valuable assets.
After all, the term capital refers to economic value — which employees can bring to an organization if it provides them with the right framework, resources, compensation, and support. Employees deliver economic value through their education, skills and expertise, personal values and beliefs, networks and connections, and their physical and mental health.
Human capital management encompasses all activities related to recruiting, hiring, developing, rewarding, and managing employees — essentially bringing out the best in everyone to help the organization reach its goals. These activities can range from creating and properly communicating the organization’s mission, vision, and values to employees to offering professional development programs throughout an employee’s career with the organization.
What is Human Resource Management (HRM)?
Human resource management is a comprehensive approach to managing the employees in an organization and providing them with the support they need to thrive. When looking at human capital management vs human resource management, you can see that they overlap, but they differ in their primary focus.
While human capital management maximizes employees’ economic value to the organization, human resource management focuses on developing and managing systems and processes that enable employees to perform their roles effectively.
Human resource management includes handling a number of tasks, such as
- Recruiting and hiring new employees
- Onboarding new hires
- Training employees to do their jobs or master specific areas of their jobs
- Developing competitive compensation plans, including pay and benefits
- Handling disciplinary actions and conflicts
- Meeting labor laws and industry compliance regulations
- Creating and maintaining a supportive workplace culture
- Managing relationships among employees and between employees and the employer
Human capital management vs human resource management: What are the main differences?
The key difference between human capital management and human resource management is in the objectives of each approach. For example, training within human capital management is considered a professional development investment, ensuring employees develop competitive skills they can use to provide economic value to the company.
Human resource management also oversees employee training. However, the focus is more on using learning management systems (LMS) to properly track the kind of training employees complete and then assess what they’ve learned through tests or projects.
Similarly, when it comes to recruiting and hiring, a human capital management approach centers on finding employees with skills the company needs to reach economic objectives. In human resource management, the focus is on creating a streamlined recruiting process that helps the company find the best people for open roles.
Regardless of which approach your organization chooses — or whether you decide to use a combination of the two — it’s important to align your employee initiatives with the company’s overarching goals. This way, your recruiting, onboarding, training, compensation, and other HR activities will all work toward helping the company reach its personnel and economic targets.