Companies that don’t view employee lifecycle through a strategic lens of Human Capital Management (HCM) struggle to attract, develop and retain talent. What is HCM, then, and how can it help you increase workforce productivity?
Human Capital Management (HCM) is the process of attracting the right talent and managing it effectively.
Today we’ll explore how you can develop an effective HCM strategy that helps you make more intelligent workforce decisions.
What Is HCM (Human Capital Management)?
Key to Human Capital Management (HCM) is the view that employees are valuable long-term assets of an organisation.
The philosophy stands in stark contrast to human resources practices of 1990s, when employees were seen as disposable cogs in capitalism’s relentless march of progress.
A well-executed HCM strategy aligns the goals of your employees with larger business goals, creating a working environment where employees feel:
(Related: Best Payroll Software In Australia).
What Practices Are Included Under The HCM Umbrella?
Exact components of HCM will vary from one business to another, but you can expect to see these 7 central themes:
- Talent Acquisition: Evaluate your company’s labour needs, then attract, hire and onboard the best talent.
- Learning and Development: Create a culture of continuous learning and provide employees with development opportunities.
- Performance Management: Set clear expectations and implement systems for providing feedback via formal and informal performance reviews. Identify capability gaps and create a culture that views feedback as an opportunity for growth, rather than a source of unwelcome criticism.
- Compensation and Benefits: Create a holistic rewards program that includes salary scales, bonuses and benefits for each role.
- Succession Planning: Define a strategy for passing on leadership roles to new employees. Create processes for identifying and developing leadership talent.
- Payroll. Record working hours and overtime accurately. Ensure employee payments are accurate, timely and compliant with local laws.
- Reporting & Analytics. Make data-driven decisions across HR and wider business functions. (e.g., leverage employee data and predictive analytics in your cloud-based HCM software to inform workforce planning decisions).
(Related: Best Recruitment Software For 2023).
A Brief History Of HCM.
‘Human capital’ was probably used for the first time by the economist Irving Fisher in 1897. Since then, it has regularly appeared in academic, business and popular writing. A brief timeline:
- The early days: Adam Smith (one of the first economists to theorise about capitalism) described elements of human capital in his book ‘An Inquiry into the Nature and Causes of the Wealth of Nations (1776).
- Global popularity: Economists and Nobel Prize winners Gary Becker and Theodore Schultz popularised the term “human capital”, which gained international traction.
- The role of technology: Since its inception in the 1990s, human capital management software (often referred to as HRIS or HRMS) has improved business communication and sped up decision-making.
- Modern usage: Today, economists claim that we have entered “The Golden Age of HCM”.
What Are The Benefits Of Effective Human Capital Management?
Implementing an effective HCM strategy, augmented by top-tier human capital management software, can streamline HR processes, improving the efficiency of your entire workforce.
- Improve candidate experience: Companies with strong HCM practices offer less intimidating, more efficient talent acquisition and onboarding processes. (Are you still hurting your brand by putting your candidates through 7 interview stages?)
- Enhance employee engagement: Ensures that everyone in the business is aligned around the same mission while reducing unhealthy conflict and turf wars.
- Stop top talent falling through the cracks: Prevents high achievers from leaving the company by challenging and compensating them at the right levels.
- Enhance compliance: Reduces workplace lawsuits and unfair discrimination claims.
- Streamline HR functions: Human capital management can reduce the workload of HR managers by consolidating disparate HR systems and automating manual processes.
(Related: Best HRIS Software In Australia).
How Can Technology Improve Your HCM Strategy?
HCM (Human Capital Management) software is cloud-based HR software that brings all components of an HCM strategy together in a single system.
Handling companywide HR processes, HCM software is an organisation’s “single source of truth” for all things related to workforce management:
- HRIS Systems: focus on keeping administrative employee records. Sometimes include payroll management and benefits administration.
- HRMS Systems: offer everything that HRIS systems do, plus a suite of comprehensive HR features such as performance management and time management.
How Is HCM Different To HRM?
Although often used interchangeably, Human Capital Management (HCM) and Human Resource Management (HRM) differ:
Human Capital Management (HCM):
- Focuses on strategically nurturing an organisation’s workforce as a business asset.
- Views employees as crucial contributors to the organisation’s success.
- Aims to maximise the value of human capital through development, training, and retention.
- Emphasises the importance of measuring and tracking the ROI of human capital investments.
- Aligns human capital strategies with overall business strategy.
Human Resource Management (HRM):
- Focuses on the administrative management of an organisation’s workforce.
- Aims to ensure compliance with legal and regulatory requirements.
- Emphasises the importance of managing employee relations, compensation, and benefits.
- Aligns HR policies and practices with organisational objectives.
Overall, HCM is more focused on long-term strategic planning and development of employees, while HRM is more focused on the day-to-day management of human resources.
The 3 Key Challenges Of Human Capital Management.
To manage human capital is to manage multiple personalities and communication styles. We’ve unpacked the most common roadblocks below.
Problem 1: Retention Isn’t Front Of Mind.
Finding and keeping qualified employees is a significant challenge for organisations in 2023, with unemployment still at historic lows.
- Offer salary packages in line with market expectations.
- Foster a positive workplace culture.
Problem 2: Performance Management Isn’t Ongoing.
Effective management involves setting expectations and regularly evaluating employee progress against them.
Human capital management professionals must work with hiring managers to ensure that success metrics are continuously communicated and employees are told when they’re falling short of expectations.
- Checking that every department has up-to-date key performance indicators (KPIs).
- Managers are skilled at creating and managing high-performance teams.
Problem 3: People With Disabilities And Minorities Aren’t Prioritised.
Is your workplace behaving in an inclusive way, or is it projecting an illusion of inclusivity?
Do more than repeating Acknowledgement of Country before each meeting and displaying pronouns in email signatures:
What Is The Future Of HCM?
Human capital management strategies of the future be augmented by artificial intelligence to streamline workforce management functions in radically new ways.
Imagine never having to write a job description and post a job ad using your HCM software again. Instead, you’ll simply say to your AI-powered digital HR assistant:
The HCM software will:
- Already know the full context around the word “salesperson”, as it relates to your business, including competencies and predictors of success.
- Search on Google and LinkedIn for someone who meets the criteria, creating a shortlist of 10 candidates.
- Find contact details of each candidate and invite them to a quick preliminary interview.
- Book the interview dates.
- Create a list of interview questions that are likely to test for competencies it deemed critical.
- Conduct interviews using a combination of voice-to-speech, Google Meet and AI-generated video.
- Assess, score and rank candidates’ responses.
The final step?
Five years ago, HCM capabilities like these were bordering on science fiction.
As of July 2023, 70% of them are already possible to perform using ChatGPT and Google Bard. A company that integrates into a single, AI-enabled Human Resources Information System (HRIS) will create a talent management system of the future.
Final Thoughts On Building A Human Resources Management System.
Human Capital Management (HCM) is a set of business-wide practices that range from talent acquisition to benefits administration and payroll.
Often augmented and enabled by HCM software, they help organisations improve their productivity and retain employees by reforming old talent management practices.