Human Capital Management (HCM)
What is Human Capital Management?
Human Capital Management (HCM) is a set of strategies that focus on talent acquisition, management, and development to maximize business value and profits. It includes administrative and strategic applications that improve productivity and eliminate costs. These strategies fulfill organizational and employee needs and drive strategic growth.
What are the elements of Human Capital Management
Human capital management includes both strategic and administrative practices to achieve optimal efficiency. Following are the elements of HCM:
- Workforce planning
- Recruitment and hiring
- Time and attendance
- Employee Self-Service (ESS)
- Compensation and benefits planning
- Talent management
- Performance management
- Retirement services
- Reporting and analytics
- Workflow management
Benefits of Human Capital Management
Human capital management helps plan the recruitment, hiring, training, and management of employees within the budget to achieve business goals and retain talent. A few benefits of human capital management include increasing employee value and retention, streamlining HR processes, boosting efficiency, and promoting employee development.
1. Match the skills with business goals
Human capital management’s processes help in identifying an individual’s specific strengths and skills. Companies can place employees in the right roles where they can put their knowledge, abilities, and competencies to good use. This not only ensures job satisfaction but increases efficiency and productivity.
2. Streamline HR processes
Human capital management allows organizations to automate their manual processes and integrates HR systems. It simplifies HR functions like recruitment, talent management, etc., to help achieve business outcomes.
3. Optimum utilization of human resources
Since individual skills and competencies are identified, companies can optimally utilize human resources to increase revenue and productivity. Human capital management helps employees progress and helps them acquire the skills needed to improve their results. It also helps them focus on what they do best.
4. Increase operational efficiency
HCM helps identify any skill gaps through performance reviews, feedback, surveys, etc. Training and development programs are implemented to make sure that employees have the required skills and abilities to perform in their role. Businesses can maximize their potential to achieve business results and profits.
5. Promotes employee development and career planning
HCM primarily focuses on talent and workforce management which enables managers to identify individual capabilities to design development programs. It allows employees to develop new skills and capabilities so that they can deliver the best performance. When skills are evaluated, employees can better plan their careers and have control over their jobs.
6. Reduce costs and increase productivity
Since Human capital management is a cloud-based system, it cuts costs by document storage and automating HR tasks. It significantly reduces maintenance costs and other HR processing costs as well. As employees are placed in positions where they are able to perform their best, it significantly enhances their performance and productivity. Ultimately, it boosts revenue and ROI.
7. Enhance performance management
HCM allows self-reviews, ratings, peer feedback, and communication within departments to encourage employees to go further. It also streamlines the performance management information and stores data related to employee goals and reviews. Overall, it increases the contribution of employees towards strategic goals.
Challenges of Human Capital Management
Human capital management drives business greater business results, reduces costs, improves performance, and provides other benefits and opportunities. Organizations must also be prepared to face a few challenges most businesses face.
1. Acquisition and retention of talent
Attracting talent is one of the primary challenges of HCM. Considering the highly competitive market, it can be difficult to acquire the best talent. Retaining the top performers requires an impressive retention strategy that provides employees with career development opportunities, well-being, compensation and benefits, etc. Some of the few things that a business should work on are:
- Employer brand
- Candidate experience
- Work flexibility, compensation and benefits, and well-being
- Aligning skills, passions, and goals with those of the organization
2. Training and development
Some of the most common challenges include increased costs, virtual training needs, keeping employees engaged, and accomplishing the training needs. Training programs that are dull and dry tend to disengage employees and in the worst case leads to turnover. Employees who want to constantly learn new things and expand their skills expect organizations to fulfill their interests. HR departments have to ensure that the investment in training and development is delivering the anticipated returns.
3. Data management
Human capital management generates a large amount of data which can be difficult to manage. Organizations will have to invest additionally to collect, store, and analyze data to take informed decisions. This can be a challenge for smaller businesses that have a limited budget.
4. Performance management
Performance management systems must be fair, transparent, and effective to ensure. Failed performance management systems significantly impact progress, productivity, engagement, and the bottom line. Communication plays a crucial role in performance management. Poor communication and lack of clarity lead to decreased engagement and poor employee performance. Feedback has to be provided on time or it may result in lack of understanding with regards to expectations, low morale, and negative behavior.
5. Addressing gaps and planning succession
To sustain progress, businesses will have to continuously address any gaps in skills and capabilities with respect to the latest trends and skills in the industry. Training programs and resources that don’t focus on this may end up being wasted. When employees believe that the training or development programs are not relevant to the trends and day-to-day work, they may not participate in the sessions. Succession planning can also pose a challenge as it requires a good understanding of the current and future talent needs
What is an HCM software?
An Human Capital Management software is a consolidation of HR systems that help manage the employee lifecycle. From recruitment to exit, it automates HR operations and enables organizations to focus more on employees. Manual administrative tasks are eliminated, and HR can be more strategic. HCM is often interchangeable with HRIS (Human Resource Information System) and HRMS (Human Resource Management System).
Some of the features an HCM software has are:
- Core HR functions
- Talent acquisition
- Talent management
- Talent development
- ESS (Employee Self-Service)
- Employee records management
- Succession planning
- HR Analytics
Some of the core HR functions include attendance, leave, performance, payroll, timesheet, benefits, training, compliance, etc. HCM software solves any challenges faced when it comes to acquiring, managing, and developing talent. It promotes a healthy and engaged workforce, streamlines tasks, provides easy storage and access to information, reduces human errors, and facilitates data analysis for important decision-making.
How to choose an HCM Software?
Most companies prefer cloud-based HCM software, but some may have it installed on their server or hard drive. To choose an HCM software:
Step 1: Assess the current and future organizational needs
Some HCM software systems are designed to fulfill specific needs of a company. Organizations must take time to understand their specific human resource management needs. To get started, list down the challenges faced by the HR department from recruitment to exit. Include processes that are most time-consuming, don’t fit the growing HR needs, and don’t contribute to the employee experience. If the business is already using an HR system, here are a few things it must consider:
- The software is too complex for a team to use
- Exceeds the current budget limit
- Less ROI
- Frequent administrative related complaints
Step 2: Investigate the HCM software available on the market
There are different kinds of HCM (Human Capital Management) software available. While they offer similar functions or features, organizations must research the tools that can best solve their most complicated processes. They may accommodate themselves to the features that don’t completely solve their least priority challenges. After narrowing down the systems that best suit the business needs, there are some additional things that can also be considered such as:
- Customer testimonials
- Integration with other HR tools
- Simplicity and ease of use (For both employees and HR managers)
- Flexibility and customization
- Security, on-premises/remote options, pricing, and free trial
- Promotion of employee experience
Step 3: Select, test, and implement
After narrowing down the list of HCM systems that can potentially fulfill the most complex problems, select the ones that stand out from the rest in terms of brand visibility and opinions from the HR department. Consider scheduling calls, sending request for proposal (RFP) or request for information (RFI) to further narrow down the list. If possible, take time to study their website, blogs, case studies, etc.
Take free trials and gain a good understanding of how each HCM software works. Test only a handful of ones and implement them at a smaller level to note down any limitations that cannot be compromised. Take opinions from HR departments and employees to ensure nothing is missed. If the software doesn’t offer a free trial, try for a few months as it’s cheaper than choosing the wrong system.
Implement the HCM software and properly integrate it into daily operations. Don’t forget to communicate, train on the new system, manage change, and take feedback. The best-suited system should progressively increase the ROI on software, save time, improve processes, and solve other pain points.
Frequently Asked Question (FAQs):
1) What is the difference between HCM and Human Resource Management?
HRM was introduced to perform core HR functions and adopt the best techniques to manage talent. It fulfills the ‘how’. HCM also includes core HR functions but focuses more on the strategic side. The focus is on viewing employees as an investment and their overall value. It covers the ‘why’ part.
2) What is HCM example?
HCM transforms the general HR functions into something that drives profits and business value. For example, it helps identify an employee’s skills, capabilities, and passions to align them with the organization’s, which ultimately increases value and profitability.
3) Is HCM part of ERP?
HCM is not a part of ERP. Enterprise Resource Planning (ERP) is a software used to manage daily business operations like procurement, accounting, supply chain, risk management, and other manufacturing-based operations. HCM has more to do with acquisition, management, and development of employee talent.
4) What are the objectives of HCM?
The main objective of HCM is to connect employees with business outcomes. It focuses on the optimum use of human resources to maximize returns for strategic growth, employee experience, and performance. It views employees as individuals and as assets that can be invested in but not as a tool.