What is Human Capital Management? Understanding HCM and HCM Software

People are the lifeblood of any organization — without them, it cannot succeed.

That’s why many modern organizations have adopted a human capital management (HCM) philosophy as a part of their people strategy. HCM prioritizes employee experience and professional development (often alongside HCM technology) to drive business outcomes.

While HCM refers to this overall approach, the term is also used to describe an all-in-one HR and payroll software solution.

An HCM solution goes a step further than traditional payroll software. It integrates strategic processes and tasks that help an organization function and evolve as its employees grow. This comes from HCM’s fundamental shift regarding how employees should be viewed and managed by the organizations that hire them.

So, how can your organization place people at the center of your business strategy? Let’s break down the building blocks of HCM and the role technology plays.

What Is Human Capital Management (HCM)?

HCM is a workforce management strategy that puts people, your human capital, at the center, with the objective of aligning employee growth with organizational growth. Ideally, employees become experts in their roles, learn new skill sets, and contribute to the larger business goals.

Similarly, supervisors and managers can learn how to support these opportunities and encourage employees to pursue them.

Human capital strategy truly is a business investment — in people. Managing human capital ensures that investment is well-spent by providing the tools to help all employees and your organization thrive.

Human Capital Management vs. Human Resource Management

HCM and human resource management (HRM) overlap, but aren't quite the same. HCM is focused on developing human capital and outlines the strategies your organization will use to sustain and grow the business. HRM is more tactical and typically addresses HR functions such as recruiting, onboarding, compensation, and benefits.

HCM tends to be more comprehensive and covers the entire employee lifecycle at an organization, while HRM focuses on executing the core functions of HR activities.

For example, HCM would define the core competencies that an organization’s employees will need to make the business successful, and HRM would identify how to recruit and retain those employees. 

Learn More: HCM vs. HRIS vs. HRMS: What Are the Differences?

5 Benefits of Human Capital Management

HCM is key to unlocking an organization’s full potential. It enhances productivity and fosters a culture of continuous improvement.

In more concrete terms, that looks like:

1. Effective Talent Acquisition: Organizations are more likely to attract and hire the best candidates, ensuring a better fit for roles and contributing to higher overall productivity.
2. Better Workforce Planning: HCM tools and data analytics for effective workforce planning, helping organizations anticipate future talent needs and develop strategies to meet those demands.
3. More Skilled Workforce: Targeted development programs and continuous learning opportunities help employees expand their skills and knowledge, contributing to both individual growth and organizational success.
4. Improved Employee Engagement: Focusing on employee needs and development improves engagement and job satisfaction.
5. Reduced Turnover Costs: HCM focuses on backing the employee in a manner that synchronizes with the company's objectives, resulting in increased engagement, job satisfaction, and improved retention rates.

Key Elements of Human Capital Management

The concept sounds appealing in theory, but what exactly does HCM involve in practice?

1. Recruitment and Selection: Processes for identifying, attracting, and hiring qualified candidates who align with the organization's values, culture, and skill requirements.
2. Onboarding and Orientation: Activities to integrate new hires into the organization, providing them with the necessary information, resources, and training to succeed in their roles.
3. Performance Management: Systems and processes for setting goals, providing feedback, assessing performance, and rewarding achievements to enhance employee productivity and development.
4. Learning and Development: Programs and initiatives that enhance employee skills, knowledge, and capabilities through training, education, and professional development opportunities.
5. Compensation and Benefits: Strategies and practices for determining and administering employee compensation, including salary, bonuses, incentives, and benefits packages.
6. Employee Engagement: Initiatives to foster a positive work environment, promote employee morale, motivation, and commitment, and enhance overall job satisfaction.
7. Talent Management: Comprehensive strategies for identifying, developing, and retaining top talent within the organization to meet current and future business needs.
8. Succession Planning: Processes for identifying and developing internal talent to fill key leadership and critical roles within the organization in the future.
9. Diversity, Equity, and Inclusion (DEI): Initiatives to promote diversity, equity, and inclusion within the workplace, ensuring a fair and inclusive environment for all employees.
10. HR Technology: Utilization of technology tools and systems, such as HRIS (Human Resource Information Systems), to streamline HR processes, enhance data management, and support decision-making.

What Is Human Capital Management Software?

HCM software is a comprehensive digital toolset designed to help develop and execute HCM strategy throughout the employee lifecycle.

HCM technology provides administrative functionality for executing core HR functions. It also has strategic capabilities like data analysis tools that help HR professionals monitor employee trends and make more informed business decisions.

The Key Functions of HCM Software

An HCM solution includes traditional HR technology, such as payroll processing or benefits administration. It adds to those practices and integrates them with larger, strategic processes, such as succession planning, performance management, and employee sentiment analysis.

Again, the goal of HCM strategy is to ensure the organization can both function efficiently and nurture employee growth. To do this, an HCM technology platform addresses:

• Administrative tasks: to keep your organization and its workers operating smoothly
• Workforce management: to plan and manage labor costs and minimize compliance risks
• Talent management: to recruit, train, and retain high-performing employees

A modern, integrated HCM solution typically includes these HR functions:

Features of HCM Systems and Software

Modern HCM solutions are generally customizable and as varied as the organizations they serve, but there are a few common denominators among them:

• Cloud-based. Although not all HCM software is cloud-based, most modern systems are. Using HCM technology through the cloud is usually more secure and scalable than an on-premises solution, which is especially important when you are planning for your future talent needs.
• All-in-one suite. In contrast to legacy Human Resource Management (HRM) or Human Resources Information System (HRIS) technology, an HCM solution integrates payroll and HR functionality with a single employee record. This creates one true source of employee data, which allows for more streamlined and accurate processes.
• Reporting and analytics. A complete HCM system provides meaningful insights into the health of your workforce, such as turnover rates and employee diversity, to help you and your executive team get to know your people better.

Other features of today’s HCM technology often include employee self-service portals where workers can manage benefits, scheduling, on demand pay, and other services offered by your organization.

How to Choose HCM Solutions

Choosing the right HCM system or software is probably the most important technology-buying decision for an HR team, says the Society for Human Resource Management (SHRM). Here are a few factors to consider when evaluating if an HCM platform is right for you:

• Alignment with organizational needs. By far the most important factor is how well the software suits your needs and goals. When evaluating systems, emphasize your needs to potential providers so they can address specifically how their product will help you achieve your goals.
• Real-life case studies. While you are researching possible solutions, be sure to look at case studies from organizations in your industry or that have similar workforce pain points — you may discover other uses for HCM technology you hadn’t considered!
• User-friendliness. Make sure the software is intuitive and easy to use for all your business users. A solution that no one knows how to use won't get you very far!
• Custom capabilities. How agile and customizable is the platform? Keep in mind that technology evolves quickly. You want to find a solution that will keep you ahead of the curve and meet your future needs as well.

Getting Started with Human Capital Management Solutions

When you’re first contemplating where to start with HCM solutions, the range of options available can seem intimidating. You need a system that aligns with your current business needs, but which will also continue to be fit for purpose as your organization develops and grows.

Paylocity is a modern HCM solution designed to be your partner in supporting your workforce and driving business outcomes. Our all-in-one Payroll and HR suite helps you:

• Improve Productivity. Empower employees to collaborate more effectively, keeping them engaged and boosting productivity at all levels of your organization.
• Attract Star Talent. Accelerate recruiting with extended reach, convenient communication with candidates, and opportunities to share your company’s uniqueness.
• Reduce Turnover. Make your organization a truly great place to work by investing in your employee's professional development and workforce engagement.
• Build Culture. Create an engaging company culture with employee experience-oriented tools that foster connection, collaboration, and belonging.

Find out more about how Paylocity can help you go forward, together. Request a demo today!