HCM Adoption Christopher SmithNovember 17, 2021

Human Capital Management 101: What It Is, Why You Need It

Human Capital Management 101: What It Is, Why You Need It

Human capital management (HCM) views HR, the workplace, and the workforce as a business asset that drives value and contributes to organizational performance.

According to this view, human capital, as with any other business asset, is a strategic asset that can be invested in, optimized, and leveraged to increase its bottom-line value for the organization.

Human Capital Management 101

HCM is a business discipline and a strategy that is typically implemented through HCM platforms, HR software that performs a range of HR functions, including:

  • HR automation. Automation features can handle a wide range of HR tasks throughout the employee lifecycle. These can include everything from communicating with employees to handling vacation requests to automating report creation.
  • Recruitment. Talent acquisition has changed significantly in the digital age. HCM platforms include functions to help HR staff streamline recruitment, such as job site searches, job posting, candidate prequalification questionnaires, and so forth.
  • Talent management. Talent management can include talent acquisition to career development to succession management.
  • Employee training. Employee training is typically offered through independent platforms, such as learning management systems or digital adoption platforms. HCM platforms, however, also offer their own set of capabilities related to employee training.
  • Workforce management. Workforce management and workforce planning is essential to ensuring that the workforce can meet the organization’s needs. Features in HCM platforms are often related to compensation and succession planning, or planning for the organization’s future needs.
  • Employee experience management. Employee experience management focuses on the experience that employees have while working with a company. Since that experience impacts productivity, engagement, and other key employee metrics, managers will find ways to improve those metrics by improving the employee experience.
  • Rewards management. Rewards, incentives, and recognition are often part of performance management. Systems are needed to manage those rewards and ensure that they are being distributed properly.
  • Employee database management. Employee database management, or employee records management, is a basic function of most HR software. These databases include employees key information, such as their contact information, job information, salary information, and any other information related to their employment.

All of these functions of HCM platforms, as mentioned, correspond with the strategic functions of the business discipline of HCM. Experienced HR managers will notice that there is a distinct focus on using the workforce as a strategic business asset, rather than simply performing the traditional functions of HR, such as hiring, payroll, and attendance.

But what are the benefits of HCM versus the traditional approach to HR?

HCM vs. HR

We have already seen that HCM takes a strategic view of the workforce. Namely, while HR takes an operational view of its tasks, HCM focuses on generating continually increasing business value from the workforce.

There are several benefits to this approach.

Here are just a few:

  • An improved employer brand. The employer brand refers to the company’s reputation as a place to work. By improving the employee experience, employee engagement, and the organizational culture, you can also improve the company’s reputation. This can result in a happier workforce, increased employee retention, and the ability to attract talk talent.
  • Better talent. Today, there is an increasing gap between employees’ skills and the needs of the organization. This skills gap is creating talent shortages in certain industries, particularly those that require digital skills. As mentioned, by strategically improving the workplace experience and the employer brand, you can attract better talent, which will generate better outcomes for the organization.
  • A more skilled workforce. Employee training is another primary focus of HCM. rather than viewing employee training simply as “job training,” a strategic view of training understands that employees without skills will not contribute to the organizations objectives.
  • Improved organizational performance. A holistic approach to improving the workplace and the workforce improves workforce productivity, engagement, efficiency, agility, and resilience, among other metrics. These improvements, in turn, affect the same metrics at the organizational level. For instance, a workforce that is more agile will enable organizational agility.
  • A better organizational culture. Organizational culture refers to the beliefs, attitudes, and values held by a company’s workforce, as well as the tangible manifestations of that culture, such as social behaviors and dress codes. Although there is no such thing as a perfect organizational culture, there can be problems within a culture, such as internal friction, conflicting values, or ambiguity. By consciously focusing on aspects of the workplace such as culture, HR managers can leverage HCM techniques and tools to improve the culture and workplace dynamics.
  • Better business outcomes. The bottom line is that a strategic view of HR, the workplace, in the workforce generates better business outcomes. Leveraged properly, the workforce can increase an organization’s ability to grow, meet its objectives, and generate profits.

The transition towards a strategic view of HR and the workplace has been ongoing for some time. Given the disruption that we are witnessing in the economy and the labor pool, it should come as no surprise that many companies are realizing that they must begin to treat employees as an asset, rather than a commodity.For more on the topic of HCM and HCM platforms, see our article on HCM adoption.

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