What is Human Capital Management?

Human capital management (HCM) is the practice in which an employer considers his employees as capital and invests in uplifting their performance and as a result, achieve large business goals of the company. The organization executes the practices to improve the following areas: Recruitment, Employee Management, Development, and Optimization. 

A well-executed Human Capital Management process will help any organization get the right candidates, have an experienced and talented workforce, motivated and determined employees.

Difference between HCM and HRM

Human Capital Management and Human Resources Management might have a lot of similarities considering they both deal with the employees of a company. However, Human Capital Management and Human Resources Management differ by a few fundamental concepts.

Human Capital Management Human Resource Management
Human Capital Management or HCM majorly involves the grooming and optimizing of a company’s employees. HRM or Human Resources Management primarily involves managing the information and data of the employees of the company.
HCM as a concept views employees as capital. Organizations invest in them to grow. HCM gives ways through which the capital can be grown or used to get effective results. HRM views the employees as resources that help achieve the organizational goals and takes care of managing the information and needs of the resources, aka employees.
HCM is adapted by bigger workforces when there are a huge number of employees.  HRM, even if not established as one, is mandatory for every organization, no matter its size.

What are the Elements/Components in HCM?

Human Capital Management majorly revolves around four things: Recruiting the right people, Career Development for the Employees, Motivating or Mentoring the Employees, and Bringing in place different practices to improve employee performance. How you go about doing this correctly is what you will learn when you know the elements or components involved in HCM, as it will give you an idea to develop the framework to achieve this. 

Human Capital Goals

Before you implement Human Capital Management for your organization, understand clearly what is your goal with your capital that is your employees. By working on improving the capital of your organization, what are you planning to achieve? Is it more revenue or a better brand image or a growth environment for a specialization, what is the end goal of your investment in your capital? 

The direction of your HCM Process

Once you know why you are doing it, you can then think about how to do it. That is the process/ direction you are going to take to implement the HCM strategies and eventually achieve your capital goals. Although your goals might be big, only when you get down to work on the direction for your Human Capital Management process will you know the possibilities and limitations for your organization. 

It can be budget, or time, or anything that you might have to look into and tweak your capital goal accordingly. Communicate with the stakeholders, understand how the company’s vision ties up to the capital goals, and implement a clear direction the company will take on the HCM strategy. 

The Strategy 

You are clear on the goals you want to achieve through Human Capital Management and you also are aware of how much you can do as a company; you know clearly which direction you are going to take to work on it, now is the time to finally get down in the mud and make your feet dirty that is work on the actual policies and strategies that will be implemented as part of the Human Capital Management Process. 

A sample of how some strategies can look like is: 

Implement the Plan 

Once you are clear about the different strategies you are going to use for your Human Capital Management plan for your company, implement them. The fourth element of an HCM process is implementing the strategies and seeing how it goes. 

You can start by, 

Maintain the Plan and Improvise it

No plan succeeds the first time or at one go, especially a Human Capital Management plan. So it is imperative that you maintain, change, and improvise your plan as you go. Gather feedback from stakeholders, investors, your employees, and your enablers to understand how and what is working and develop your strategies as you go. 

Why is Human Capital Management important?

Like I said before, Human Capital Management is the process in which an organization sees its employees as its capital on which if they invest correctly it will enable the company to achieve its goals and grow in its sector. So, the major importance of Human Capital Management comes in the different ways it can improve the capital, aka the employees of an organization which improves and grows the organization. 

Some key areas where a proper HCM process plays an important role are: 

In Hiring the Right Talent 

HCM helps an organization clearly understand the type of employees it needs, the employees who will be a true asset to the organization, and also makes it easy to bring this into consideration while hiring. It helps to avoid hiring the wrong people. 

Onboarding the Employees 

HCM helps to onboard and orient the employees efficiently. The Onboarding process becomes a way through which the employees know what their organization expects from them and also understand how their performance is important to the organization. There are no ambiguities from Day 1. 

Career Development for Employees

If your employees feel empowered from their everyday work, and see that their career path is in the right direction, they will perform well and bring more value to the organization. HCM helps organizations to give that win-win situation where employees grow as individuals and benefit the organization. 

Better Retention Rates

Proper goals, right alignment with the organization, and constant growth are all sure winners among employees which will help in the retention rates for an organization. Lesser the people who quit, the lesser the time and money spent in hiring and training new folks. The ROIs become invaluable when employees stay in the organization for long periods and HCM plays an essential role in doing that. 

Self-Sufficient Employees 

When an employee works for an organization like it is her own company, she will handle anything that comes her way. And a good HCM process makes that happen. It makes the employees self-sufficient and independent through growth, which will lead to them handling any situation with confidence and proper knowledge. 

Challenges in Human Capital Management

Human Capital Management has tons of benefits, as we have seen, but it is super difficult to implement it. The only way it can be easy is if your organization had this is in mind from Day 1, which is a rarity. Most organizations spend the initial years trying to find their ground. So, human capital management does not take the front seat during the initial years. The introduction of it itself throws many challenges to your organization. 

Some common challenges faced are: 

Future of Human Capital Management / HCM Trends

Although on the outset Human Capital Management might look like a smoke screen used by organizations to get work from its employees, the future or even the current changing trend of HCM suggests otherwise. With Covid-19 and the change in the way we work, companies are using Human Capital Management for what it is, a way to empower employees. Some trends we see among major companies are: 

Organizations and Employees are finally reflecting and understanding that there is no balance between work and life, it is infused. And as a result, organizations are making workspaces of well-being for their employees. Companies do this through benefits or open conversations or any other HCM strategy that fits a company, but the myth of work-life balance is diminishing, taken over by sensible Human Capital Management. 

The compulsion to learn a skill to survive a job or role is no longer present for employees in a lot of organizations. Organizations have understood that nurturing existing skills in an employee is far more beneficial than forcing a new one on them. Redesigning their role and goals according to the skills an employee exhibits is a seed sown by Human Capital Management that is sure to become a trend in the future.

Focusing on the team over one individual was in the incubation stage in many organizations until COVID-19 happened. It forced employees and employers to lift and hold each other, which exhibited the power of functioning as a team rather than as individuals. From goals to vision to culture, we see a tremendous shift towards growing as a team which ends up with individual growth instead of the other way around. 

The growing adoption of HCM has thrown up an obvious trend that's reflecting in the change in strategies and policies in organizations where the focus is shifting towards employee betterment and comfort rather than focusing on just results. HCM has proven that with a good policy in place, growing employees can grow the organization. 

HR is no longer the team you go to for just claims. The final and major trend in HCM comes in the HR space. HR departments and HR folks are now responsible for the complete happiness of the employees in turn the company’s happiness and satisfaction. And thus the relationship they have with the employees in a company is also growing. 

A budding trend we would like to add here is how HCM is finding its way into small businesses. In the future, Human Capital Management will not be something only big organizations follow or adopt; every small, medium and large business will go the HCM way. 

It is clear that Human Capital Management is important, are you interested to know how to implement it? Well, there is an easy way to do it and succeed at it. A Human Capital Management Software. 
 
But how do you know which one is right and what to look out for while choosing your HCM software? We have just the right article for you to read and decide. 

 

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