What is Human Capital Management? Understanding HCM and HCM Software

May 06, 2024

Explore the advantages of a human capital management (HCM) approach to business and how HCM technology can enhance your workforce management strategy.

People are the lifeblood of any organization — without them, it can't 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 holistic 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.

Key Takeaways

  • Human capital management is an HR strategy that aligns employee growth and business growth.
  •  HR professionals are key to implementing HCM, adapting strategies to evolving needs, and fostering a culture of improvement and innovation.
  • HCM goes beyond traditional HR functions, integrating comprehensive practices like workforce planning and employee engagement into a unified strategy.

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. 

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 empower 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: A more engaged workforces equals less quiet (or loud) quitting and reduced costs to turnover and unproductivity.

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 the Role of HR in Human Capital Management?

Human capital management is a comprehensive strategy that involves multiple stakeholders across HR and other departments, all contributing to its implementation. But HR professionals serve in the vanguard, leading the charge as pivotal facilitators. 

HR drives the strategic alignment and hands-on implementation of essential HCM practices. HR pros must adapt these strategies to meet evolving organizational needs and foster a culture that promotes continuous improvement and innovation within the workforce.

In short, HR professionals are the linchpins in the vast machinery of human capital management, turning strategic vision into actionable reality.

What is Human Capital Management Software?

To make your human capital dreams a reality, you’ll likely need a partner. Enter: HCM software. 

HCM software is a versatile digital toolkit for managing the employee lifecycle and executing strategic HR functions. It combines administrative tasks with data analysis tools, empowering HR professionals to monitor trends and make 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:

Payroll Software

Workforce Management

Talent Management

Employee Experience

  • Expense Management
  • Tax Services
  • Wage Garnishment
  • Benefits Administration
  • Time and Attendance
  • Scheduling
  • Recruiting
  • Onboarding
  • Performance Management
  • Compensation
  • Learning and Development
  • Communication
  • Employee Surveys
  • Peer Recognition

How to Choose HCM Solutions

Choosing the right HCM system or software is probably the most important technology-buying decision for an HR team. Here are a few factors to consider when evaluating if an HCM platform is for you:

  • Alignment with organizational needs. 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 researching possible solutions, 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? Remember, technology evolves quickly. You need a solution to keep you ahead of the curve and meet your future needs.

Get Moving with Human Capital Management Software

When contemplating where to start with HCM solutions, the range of options can seem daunting. You need a system that aligns with your current business needs and will still fit as your organization 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 employees' professional development and workforce engagement.
  • Build Culture. Create an engaging company culture with employee experience tools that foster connection, collaboration, and belonging.

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




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