Human Capital Management

What Is Human Capital Management?

Human capital management (or HCM) refers to transforming the workforce into an asset through the right manpower recruitment tools, training them, and maximizing their efficiency to increase the productivity of a business. It primarily contributes to value addition and increased return on investment of an organization’s human capital.

You are free to use this image on your website, templates, etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Human Capital Management (wallstreetmojo.com)

It forms a part of business strategy encompassing various information technology tools to implement it. It acts as a universal connector of the entire recruitment process, compensation & benefits, training, payroll, and work-life balance of employees. As a result, it becomes a key factor in allowing firms to make better & faster decisions, improve employee satisfaction, and harmonize the workflow with efficiency and engagement.

Human Capital Management Explained

Human capital management refers to transforming a firm’s workforce into an asset that can give better return on investment to it and the investors, just like capital investments. It consists of a cycle of HR activity from identifying vacancies to onboarding, training, and retirement of an employee using complex AI-based HR software. HCM also envelops the working staff’s payroll management, compensation structure, and retirement benefits.

HCM, through an integrated software system, facilitates the following:

• The extraction of the best talents from an employee.
• The attraction of the best talents from the industry.
• Retention of a talented employee.
• Aligning HR aspirations with the corporate objective.
• Automating salary. 
• Leave and attendance calculation.
• Providing appropriate feedback mechanisms for current employees and existing employees.
• Timely disbursal of salaries and pensions. 
• Handling or proper award, reward, and compensation to deserving employees. 
• Calculation of human capital value (HCV) of an organization.
• Finally, it allows the calculation of human capital return on investment (HC ROI)

One must note that HCV helps a business determine the value of a worker’s future cash flows. Moreover, HC ROI is a metric to measure the monetary value earned by the employment of an employee of an organization. Hence, HCM is an important factor in the exceptional performances of successful companies globally through its scientific approach and AI in HR management.

Functions

One can broadly list the HCM functions in the following manner:

You are free to use this image on your website, templates, etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Human Capital Management (wallstreetmojo.com)

• Core HR practices related to job posting, screening of candidates, interview, selection of right candidates, induction & training of selected employees, compliance with HR practices, and employee data management.
• Talent handling through recruitment, development, and employee retention. The inclusion of various modules for learning, employee succession plans, and performance and compensation management makes it more functional.
• Employee management across various spectrums of the globalized structure of a business, time management, attendance and workforce handling, budgeting, and labor allotment as per needs.
• One-stop HR services delivery by HR helpdesks, employee and manager self-service intranet portals and enable efficient human capital management strategies for the entity.

Examples

Let us look at one generic and the other as real-life human capital management examples.

Example # 1

Let there be a company, ABC, involved in iron ore production. It has many employees, so it gets difficult to track performance, retirement, vacancies, payroll, and monthly compensation. Its HR get based on paper and files managed by the old system of workforce handling. Therefore, productivity decreases with the increasing attrition rate.

Hence, it decides to upgrade its human resources by collaborating with an online HCM software provider. After the upgrade, it observed a considerable increase in the performance of employees, iron ore production increased, and the attrition rate dropped considerably. Moreover, the HCM system managed HCM successfully and efficiently, leading to growth in production, employee satisfaction, and profitability.

Example # 2

United States Securities and Exchange Commission got issued a critical metric on the implementation of HCM across companies in the U.S. It has mandated every company to disclose human capital to a limit to help the registrant understand the overall business. In addition, it intends to modernize financial reporting by supplementing it with HCM. As a result of this rule- the amendment to SEC Regulation S-K Item 101(c)(1)(xiii) by SEC, all companies have taken steps to ensure the following:

• Diversity at the workplace.
• Equity and inclusion in the office.
• Other aspects of talent management and human capital.

For all these functions, chief financial officers must take responsibility within an organization in association with the chief human resources officer of the group.

Importance

HCM is important in the current scenario engulfed in pandemics, work from home, and the globalization of workforces worldwide. For an organization to function efficiently, the following are the importance of HCM:

• First, HCM improves human resources management.
• It enhances the recruitment procedure.
• Third, the process identifies employee talent gaps.
• Fourth, it encourages and develops organic growth from internal resources.
• Finally, it selects the right candidate for the right post.
• The modern generation of workers prefers a better work-life balance that can get dealt with using workday human capital management.
• Freelancing has become an essential workforce globally, so HCM is handy for these jobs.
• Countries’ laws have become complex and keep changing now and then, making HCM even more relevant.
• Impact of coronavirus on firms leading to work from home bringing HCM to the fore for managing employees.
• Huge human resources data to be handled, which is possible only by using HCM.
• It enables a speedier and more accurate method of annual employee appraisal.
• It provides better control to employees over their career planning.
• HCM increases overall productivity and efficiency.

Human Capital Management System Selection

An organized and strategic buying process can help businesses to choose the right HCM partner. Here are some ways to select an HCM partner to turn daunting tasks easy –

1. Making A Checklist: It helps to analyze and prioritize business goals. It shows the drawbacks of failed organizational execution. To increase the benefits, it helps businesses evaluate HCM solutions.
2. Creating A Plan: The plan may include necessary resources, project scope, budget, future goals, and similar things.
3. Identifying Stakeholders: Recognizing the top stakeholders who might be impacted by new projects or changes and providing them updates is necessary.
4. Securing Approvals: Highlighting the business and customer benefits through the presentation of new solutions helps to secure stakeholders‘ approvals.

Frequently Asked Questions (FAQs)

Recommended Articles

This article has been a guide to What is Human Capital Management and its definition. Here, we explain its functions, examples, and importance. You may also find some useful articles here –

• Operations Management
• Strategic Management
• Capital Rationing