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Human capital management (HCM) is a set of practices related to human resources (HR) management that enables managers and business leaders to retain top talent and maximize their team’s productivity. At its core, it involves hiring the right employees and optimizing productivity to manage your workforce effectively.
“HCM is about applying systems thinking to an organization,” explained Ximena Hartsock, founder of apprenticeship and mentoring software BuildWithin. “This means viewing every process, including talent recruitment, onboarding, development and evaluation, as part of a journey rather than fragmented HR steps.”
With the right HCM software, resources and strategy, you can optimize the processes of recruiting, hiring and maintaining talent at your organization.
While the terms “HCM” and “HR” are often used interchangeably, they have different meanings.
These are some important strategies of HCM:
According to Hartsock, a simple way to look at it is to think of HCM as the overall driving force behind employee and organizational excellence. “Seeing the whole picture of the organization and thinking of employees as assets who work in a synchronized manner to achieve business goals over time, adapting to market needs, is a critical part of HCM,” Hartsock explained. Bottom Line
HCM is more focused on getting the most out of an individual than standard administrative processes.
What are the administrative elements of HCM?Human capital management includes many moving pieces that cross over into different areas within an organization. Broken down by life cycle, here are the elements of each:Recruiting potential talentHCM makes the hiring process easier for organizations by increasing the speed at which it recruits prospective candidates and improving the quality of its prospective hires. For example, it can increase engagement with work-life balance solutions that motivate candidates and show them the organization looks out for its employees. Companies entice candidates not just by sharing their list of benefits and work-life balance, but by informing them of how the company invests in employee professional development. “In a competitive labor market, attracting and retaining top talent is essential for sustained success,” said Renee Barber, global director of recruiting for TYR Talent Solutions. “HCM helps businesses build and maintain a high-performing workforce.”FYI
These considerations can make a company stand out to top-tier talent and signal to prospective employees that they will be valued at this organization.
Engaging current talentHCM practices also offer current employees administrative support. This can include workflow, benefits, payroll, information technology (IT) and other types of management. Unlike standard HR practices, a company’s HCM is unique to the organization and the employees who work there. HCM also streamlines these operations to make them more efficient. By leveraging analytics, HCM software enables businesses to make informed decisions about the work culture and employee behavior. This helps to shape a more supportive and positive workplace, which, as Barber pointed out, can drive business growth and employee satisfaction. Optimizing and developing talentOnce someone new is in the building, they shouldn’t be forgotten about. Managers typically meet with their employees regularly to discuss their career development goals and how they’d like to progress within the company. From these conversations, managers work with the employee to create realistic goals and career paths. HCMs can help that happen by offering training and educational resources to further staff development. HCMs also start the discussion about total compensation and rewards so the burden isn’t placed solely on the employee.“Regarding investing in an employee’s personal development, mentor programs, executive coaches and leadership development programs all are part of the value proposition of working for your organization,” said Stephen Kohler, CEO of Audira Labs. “Any company concerned about retaining their most talented employees must figure out how to navigate this reality if they want to continue to retain and attract top talent.”What is HCM software?Organizations can use HCM software to implement talent management and optimization systems within a company. HCM software differs from HR management systems (HRMS) and HR information systems (HRIS) as it caters to workplace efficiency and development over collecting demographic information. While HCMs, HRMSs and HRISs differ, the systems can support a similar range of functions, like payroll, employee self-service and benefits administration, depending on the vendor.HCM software can customize and automate the functions your organization needs to maximize employee efficiency. The application can record, organize and store employee data to help you make data-driven decisions about each employee’s productivity. Software managers can add and monitor specific goals and record the employee’s benchmarks to show their progress. Other functions include talent management, applicant tracking, onboarding new hires, internal training and attendance monitoring.Did You Know?
Not all HCM software will work on every piece of hardware and it may not integrate with other systems, like top accounting software.
What are the benefits of HCM software?Implementing HCM software equips businesses with access to powerful tools and insights to support their staff and improve the workplace overall. This comes with a host of benefits, including the ability to: Make data-driven decisionsHCM software allows companies to take the employee data they have gathered and use the analytics to make well-researched business decisions. This could save money in the long run, as companies are not throwing money at unproven ideas.Used effectively, this data can also uncover opportunities for employee growth and development. “Use your evaluation processes, PIPs [performance improvement plans] and other tools to support upskilling and hiring, rather than using [them solely] punitively,” recommended Hartsock. “This approach promotes growth and continuous improvement within your workforce.”Increase employee satisfactionEmployees will be more productive and happier if business decisions are being made based on their development. With software that supports development goals and encourages professional development, employees will feel the company values them and is invested in their work.“As industries evolve due to technology, globalization or changing work dynamics, HCM enables companies to reskill or upskill employees to remain competitive,” Barber explained.Improve retention ratesEmployees stick around longer when they feel as though they have a stake in the company. Having HCM software track development and provide education for employees promotes staff retention, therefore cutting down the cost and time involved in hiring new employees.As Hartsock points out, retention starts with the right people. A poor fit can lead to underperformance and dissatisfaction, making it critical to align roles — whether for potential candidates or existing employees — with their strengths. “Aim to attract workers who are eager to learn and ensure they are in the right roles to thrive,” Hartsock said. “By identifying and nurturing potential, you can plan for apprenticeships and upskilling, fostering a culture of lifelong learning.”Improve company cultureAs the saying goes, a rising tide lifts all ships. So, when all employees feel valued, the company culture becomes better. Employees will be more engaged with the company, increasing their efficiency and ability to collaborate. Internal companywide communication may improve as a result of both positive mindsets and better processes.“HCM aligns workforce planning with business strategy, ensuring employees possess the skills and competencies needed to drive innovation and growth,” Barber said.Simplify company processesHCM software helps businesses prepare for long-term growth by streamlining essential processes like compliance management, compensation practices and succession planning. As Barber noted, this software enables organizations to identify and prepare future leaders, ensuring continuity and seamless transitions for new roles. Hartsock highlighted another process HCM software can support: simplifying skills mapping. “Skills mapping (e.g., ‘What skills do people have now and what will they need in a year from now?’) is crucial not just for addressing today’s needs, but for anticipating future demands,” Hartsock added. Implement all-in-one scheduling and payrollManagers no longer have to focus their time on scheduling and running payroll. With HCM software, they can automate tedious, time-consuming manual tasks. “HCM goes beyond payroll and benefits — it’s about developing talent, fostering employee engagement, enhancing performance and aligning individual contributions with the company’s overarching goals,” Barber said.What are the potential drawbacks of HCM software?While integrating HCM software can make your employees more productive and efficient, there are potential drawbacks to consider.CostThe cost of HCM software can vary, reaching as high as $300 per employee. For smaller companies, the price ranges from $40 to $100. You should make sure you have the funds within your budget to afford these systems for the long term.Risk of a data breachAs with any computer system or application that collects employee data, there is a risk that hackers can access the information. While a security breach could be consequential, there are stringent security measures your company can take to keep your HCM data safe.ROI for cost and timeHCM technology adoption could have a long ramp-up before launch. With the large per-employee price point, you may be paying high costs before getting your return on investment. Discuss with your IT and internal team how long the software will take to implement, what the financial burden of a long launch would be and how the problems the HCM software solves outweighs both.Tip
It's important to find software that can help you achieve specific goals while fitting into your existing budget.
What to look for in HCM softwarePicking the best HCM software for an organization comes down to a team’s needs. Make a checklist of requirements so you know what you specifically want in an HCM system. There are several factors you should evaluate when researching which HCM software is best for your business: