What is human capital management?

What role does your human resources department play in creating value from employees? Does it take a reactionary role and simply provide administrative support on request, or does it proactively look for ways to improve productivity and performance and add more value to the business? 

Human capital management (HCM) is the latter — an emerging area of human resource management that aims to maximize the value of a company’s workforce.

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Key areas of human capital management

The “capital” in human capital management refers to economic value. Instead of seeing employees as expendable or replaceable, human capital management treats employees as assets who can add value to an organization based on their individual expertise, skills, network, and knowledge.

The functional components of human capital management include

  • Recruitment. Actively search for employees who can bring new value to the organization through their personality traits, management styles, prior work experience, or specialization in a particular field. 
  • Onboarding. It’s important to fully orient employees to the organization so they are ready to make an impact as soon as their training is complete. This process can take several weeks to several months. 
  • Professional development. HCM looks at how employees can provide value across their entire life cycle with the company, so an organization must offer training throughout their careers. Even if an employee has been with a company for 10 years, there’s still a lot they can learn and apply to the business. 
  • Performance management. To capitalize on an employee’s full value, the organization must provide constructive feedback, rewards (monetary and otherwise), mentoring, motivation, and encouragement.
  • Compensation. When companies view employees as valuable assets, their compensation and benefits are considered investments in the organization. Showing employees you value their contributions enables them to build loyalty toward the company. 

Benefits of effective human capital management

The human capital management approach has many advantages for organizations, regardless of industry or size. By treating employees as assets who bring value to the business, as opposed to people who just complete tasks, organizations can

  • Become agile to meet internal and external shifts. With HCM, companies align the workforce to their strategy. If the company wants to be a leader in a certain type of product, for example, they may focus on hiring people with experience delivering exceptional results involving similar products. If a market shift creates growth in a different kind of product, then the recruitment strategy will change accordingly.
  • Attract and retain leading talent. When candidates see a company investing in professional development opportunities for their employees, they will be more likely to join the organization. In HCM, organizations also conduct succession planning for key roles within the company so employees can clearly see their future within the organization over the long term.
  • Encourage employees to excel. Since employees are assets instead of merely task completers, the HCM approach considers compensation as an investment rather than an expense. Compensation can include competitive salaries and benefits in addition to an innovative workplace culture that encourages and rewards high performance.

How to streamline human capital management

Conducting human resource management activities manually or without the right tools can lead to missed opportunities, errors, and miscommunication. However, with a human resources management system (HRMS) focused on human capital management initiatives, organizations can streamline processes to further maximize employee value. An HRMS can help organizations

  • Improve candidates’ application experience
  • Track key professional development activities
  • Make decisions based on data and analytics
  • Ensure all employee data is secure
  • Meet employee compliance regulations

For example, using analytics, a business can determine a competitive salary offer to attract a top-performing employee. Similarly, an HRMS can automatically follow up with employees who haven’t completed their professional development training.

Human capital management is an HR approach that can support organizations in reaching their business goals by maximizing the value of their employees. The key is to shift the focus from seeing employees as easily replaceable people who complete tasks to unique individuals who generate value and benefit the organization in multiple ways. 

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