HR 101: Human Capital Management (HCM)August 12, 2022
Learn about Human Capital Management and how to choose the right HCM software for your organization.
You may have heard a common term among today’s organizations called Human Capital Management (HCM). While this can sound straightforward, HCM is a global, multi-billion dollar industry that reaches beyond the traditional HR tasks of payroll, recordkeeping, etc. HCM software goes a step further to include strategic processes and tasks that both 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.
What is Human Capital Management?
The purpose of Human Capital Management (sometimes abbreviated as HCM) is to help employees grow into the most productive and valuable versions of themselves. Organizations accomplish this by providing opportunities for employees to become experts at their roles, learn new skillsets to expand those roles, and contribute to the organization’s culture of career development. Similarly, supervisors and managers will be better suited to develop those employees if they too learn how to spot and provide said opportunities.
Human capital, as a concept, was created to represent any trait or skill a worker had that provided a positive result or benefit to their employer. The basic logic was that employees shouldn’t be viewed as operational costs or replaceable cogs in a larger machine, but as valuable assets organizations can develop.
Human Capital Management vs. Human Resource Management
Human capital management and human resource management (HRM) are similar, and often overlap, but are not quite the same. HCM is focused on investing in and developing human capital and tends to encapsulate the strategies built for achieving this. HRM is much more tactical or administrative and focuses on the tools and processes needed to achieve HCM goals. 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 should have to be successful, and HRM would identify the procedures needed to track performance foster these skills.
Why is Human Capital Management Important?
HCM is important because employees want to feel connected as an integral part of the organization, so keeping them engaged and involved is crucial to retaining talent. If the “Great Resignation” taught anything, it’s that employees are willing to leave if they don't feel valued.
One of HCM’s greatest benefits is helping organizations demonstrate their commitment to their employees’ futures by fostering employee development and career planning. Moreover, as role specialization spreads to keep pace with advances in HR technology, it becomes even more imperative for organizations to find employees with the right skillsets for the job as it is today and how it will be tomorrow. This is another area where HCM excels by prioritizing finding the right people to fill each job and keeping them around to reduce turnover costs.
What is HCM 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 that assists with executing core HR functions in addition to more strategic capabilities, including data analysis and employee experience tools, that help HR professionals form strategic insights and work towards fostering a positive and healthy work environment.
This does heavily overlap with the function of HRM or Human Resource Management Systems (HRMS) and HCM and HRMS are often used interchangeably. You might even see HCM or HR software referred to as a Human Resource Information System (HRIS).
The Key Functions of HCM Software
That being said, HCM doesn’t ignore traditional HR practices, such as payroll processing or benefits administration. It adds to those practices and integrates them with larger, strategic processes, such as succession planning and sentiment analysis. Again, HCM’s goal is to ensure the organization can both function efficiently and nurture employee growth. To do this, HCM’s main functions include:
- Administrative tasks: to make sure an organization runs smoothly
- Talent management practices: to recruit, retain, and develop the best employees available
- Workforce management processes: to gauge how effectively those employees are being used, supervised, and rewarded
Some examples of these specific functions include:
Features of HCM Systems and Software
Modern HCM tools are as varied as the very organizations they serve, but there are a few common denominators among them:
- Cloud-based or onsite location. One of the most common distinctions is where the software is located. Does the provider come and install it on an organization’s onsite servers or is it cloud-based to allow users the most flexibility in accessing their information? Today, many HCM solutions are cloud-based.
- Multiple tools or all-in-one suite. Another common factor is whether an organization uses different tools for different tasks or a single suite that covers all of those tasks. Using multiple tools can often give more robust options from specialized programs, but also risks communication issues between those tools. Using a single suite unifies and integrates tools to avoid those issues, but sometimes can’t provide the most powerful versions of each program.
- Separate infrastructure or layered infrastructure. Finally, almost all tools will include an emphasis on automating and streamlining tasks or processes to give HR teams more time to focus on larger, strategic goals. Some accomplish this by providing an entirely new digital structure to work within, while others overlay a new, more intuitive interface on top of an existing system. Regardless of the format, all platforms want to make life easier, faster, and better for the teams that use them.
More advanced platforms will go even further to impact talent management effectiveness and workforce management optimization as much as administrative efficiency. Some also incorporate AI-driven analysis, designs focused on the employee experience, and self-service diagnostic tools for faster customer service assistance.
How to Choose HCM Software
Choosing the right HCM system or software is, perhaps, the most important technology-buying decision for an HR team, says the Society for Human Resource Management (SHRM). Here are a few different 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. Emphasize those needs to potential providers and see how well the system can handle real examples or use cases your organization has experienced.
- Case studies and industry. Explore how much a platform has been used by other organizations in your industry and the results those groups saw. Does the system respond to industry factors easily, or does it require a lot of trial and error to find a patchwork solution?
- User-friendliness. Make sure the software is intuitive and easy to use regardless of any user’s tech savviness. It should not only be simple to navigate, but also seamlessly work with other common programs your organization uses.
- Custom capabilities. How agile and customizable is the platform? Does it adapt well to changes in your needs or logistics? Like any other appliance or tool, how “future-proof” are the features?
The right HCM software can have enormous impacts on a company’s productivity and revenue. As such, HR teams need to recognize the importance, functions, features, and benefits the more nuanced HCM approach offers. Choosing the right platform can set the entire organization up for both immediate and long-term success.
HR Tools Built With Employees in Mind
Recruit and retain talent by shaping an environment that makes employees feel valued and engaged. With HR tools built with employees in mind, you can equip your employees to be more self-sufficient and gain valuable insights into what you can automate and where you can strategically focus your resources. You can deliver the experience your employees need to find meaning in their work, and you'll continue improving efficiency.Human Resources Software
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