What is HCM (human capital management)?

Effective human capital management (HCM) strategies strive to optimize an organization’s most valuable asset: Its people. While HR teams used to primarily focus on timesheets, benefits, and hiring, today, they also prioritize a healthy company culture, encourage continuous learning, and promote career growth.

Through the integration of various HR functions, powerful technology, team buy-in, and strategic planning, HR leaders can use HCM to enhance the efficiency of workforce management and drive business success.

What is human capital management (HCM)?

Human capital management (HCM) describes a collection of practices and processes for managing an organization’s workforce. HR leaders use HCM to maximize the value each team member brings to an organization and support their success.  

Many companies use HCM software to help organize data, track value over time, and provide insights to drive future improvements.

Key elements of HCM 

Organizations can make the most of their workforce and increase employee lifetime value with programs for: 

• Recruitment: Hire the right talent at the right time
• Onboarding: Make the most of every new hire with an efficient and effective employee onboarding process 
• Payroll: Maximize the success of the HCM strategy through payroll solutions made to match your unique needs
• Time and attendance: Accurately track time and attendance and create a solid plan for absence management to understand and optimize the value of every person
• Benefits and retirement services: Spend time enhancing benefits and retirement plans to keep top talent
• Talent management: Use talent management strategies aimed at recruiting, retaining, and developing top-performing team members
• Training: Create thoughtful training programs to bring new joiners up to speed on company functions and refresh knowledge for existing talent
• Reporting and analytics: Use HRIS and other platforms to run targeted reports, shedding light on areas requiring attention such as skill gaps or payroll discrepancies 
• Compliance: Keep compliance at the core of all HCM programs and strategies, minimizing penalties and ensuring adherence with all regulations and guidelines

Human capital management best practices 

While no two organizations look quite the same, most HR teams can leverage the following best practices to establish a healthy HCM approach. 

Establish an HCM strategy and goals

Before you invest in HR tech and introduce new processes to your organization, establish your HCM strategy. Talk with various teams in your organization to identify key challenges so that your HCM solutions can support overall business objectives. Get clear about your goals and desired results so you can track the right metrics to determine success. 

A solid HCM plan promotes revenue growth, efficient processes, company expansion, and a happy working environment.

Encourage employee engagement 

An HCM strategy can only move your goals forward if everyone buys into the technology and systems. When all team members leverage your HCM policies consistently and feel engaged in their growth and company goals, you’ll see exciting improvements throughout every team.

Hold training sessions and refreshers to guide all teams in proper use of your new technology, and highlight the features that will be useful to each team member in their habitual workflows. 

Clearly communicate how the platform plays into the overall HCM strategy and how each team member contributes towards its success. 

Plan for the future 

With your HCM strategy shedding light on employee satisfaction metrics, team changes, and anticipated skill gaps, you can engage in proactive human resource planning to keep top talent in optimal positions throughout your organization. 

A clear human capital management strategy anticipates potential future requirements in your workforce to minimize disruption and preserve productivity.

How to choose the right HCM system  

Now that you’ve developed your HCM strategy, it’s time to select an HCM system that aligns with your goals and needs. 

1. Define business goals and HCM requirements 

HCM needs vary based on an organization’s size, growth goals, and structure. Determine your key objectives for your HCM system so that you can select a platform attuned to your needs. Common business goals to consider in your HCM system selection include growing teams, filling skill gaps in your workforce, increasing team member buy-in on technology and workflows, and improving employee engagement.

2. Ensure HCM system compliance 

Consider the regulatory requirements governing your industry, along with local laws. Use a fully compliant HCM system that adheres to labor laws, data protection regulations, and industry standards. Without a system with built-in compliance prioritization, companies can face fines and legal consequences if authorities discover a failure to follow labor and data protection laws.   

3. Prioritize security and privacy 

HCM systems store important and often sensitive employee information. Select an HCM platform with rigorous security and privacy controls to protect everyone in your organization and maintain trust.

4. Communicate with key stakeholders 

Involve stakeholders from teams throughout your organization in the decision-making process. When team leaders get involved in the selection process, they can provide valuable insights into the needs and challenges of their teams, identify potential issues with system implementation, and help encourage buy-in after the HCM implementation.

5. Create a request for proposal (RFP) 

Invite HCM vendors to submit proposals with an RFP. A successful RFP outlines your team’s feature requests, technical requirements, necessary integrations, and compliance needs. Vendors can respond with detailed documents that answer all of your questions, share implementation timelines, and provide pricing.

6. Prioritize integrations 

Your tech stack plays an important role in your everyday functions and processes, so you’ll want an HCM platform that integrates seamlessly with your existing solutions. That way, you can adopt the platform into your workflows without any extra headaches or delays. 

7. Shortlist different HCM vendors 

With detailed proposals in hand, you can narrow down your list of HCM vendors based on your RFPs. Loop in other team leaders as you make a final decision.

Benefits of effective human capital management 

Strategic human capital management paves the way for these important benefits:

Speeds up the recruitment process 

Functional HCM platforms can include applicant tracking systems and other tools that allow for stronger recruitment and hiring. After you make a hire, you can then use onboarding software features to streamline the entire onboarding process.  

When you reduce the time it takes to fill open positions and onboard new joiners, you help people integrate into their roles quickly, keep workloads even across team members, and reduce downtime caused by personnel vacancies. This can increase overall productivity and move the needle on broader company goals. 

Motivates team members

HCM platforms often provide performance management features for tracking professionals’ work performance and developing their skills. Performance reviews help managers accurately assess people’s progress, achievements, and performance. And when people can view their progress toward their goals and take an active role in their development, they feel empowered to rise to the next level. 

HCM also pulls team members into the broader conversation about future plans and goals for your organization, allowing them to visualize their place in these goals and work toward progression. Your people will feel empowered and engaged in their own development and in the growth of the company.

Boosts productivity 

Effective HCM platforms automate repetitive processes, expedite tedious tasks, and motivate team members to develop. These factors contribute to a productive work environment and a workforce that plays an active role in the organization’s overall success.

Improves employee retention 

Sophisticated HCM tools allow HR teams to develop a targeted employee retention strategy, which keeps skilled people within the organization and reduces the costs associated with recruitment and training. 

When team members can clearly place their skills and responsibilities in the greater picture of the company’s mission, they feel more ownership over organizational success. As a result, they’re more likely to stick around to help work toward those common goals.

HR leaders can use HCM platforms to retain top talent through recognition initiatives, compensation benchmarking, and continuous learning opportunities.

Learn more about HCM 

Get answers to common questions about HCM and HCM systems.

What is the difference between HR and HCM?

HR and HCM have considerable overlap, but the two terms diverge in a few important ways. While the term HR generally refers to a team of human resources professionals and the functions they carry out within an organization, HCM is a more broad, umbrella term. 

HCM integrates HR functions like payroll and hiring with organizational goals around team member development, strategic planning, and productivity optimization. In many organizations, the HR team spearheads HCM initiatives, but HCM also involves activities and goals outside of HR’s administrative functions. 

What is an example of HCM software?

HCM software provides a suite of capabilities and applications encompassing payroll, recruitment, hiring, workforce planning, learning and development, and much more. One example of HCM software is Bob, a platform that offers a breadth of core HR functionally as well as extensive human capital management features. 

Modern HR leaders use Bob to power productivity, engagement, and retention.

What is a human capital management strategy? 

Organizations use human capital management strategies to align HR practices with their business goals. The right human capital management strategies maximize team member performance by setting objectives, recognizing their challenges, and proactively filling skill gaps through recruitment. 

An effective HCM plan ensures that the workforce is skilled, engaged, and ready to meet the organization’s future needs.

What is HCM vs. ERP? 

HCM and enterprise resource planning (ERP) systems serve similar purposes, but they differ in scope. HCM focuses specifically on managing the workforce, encompassing HR functions and employee development. 

ERP systems integrate a wide range of business processes, including finance, supply chain, manufacturing, and HR. While HCM deals with optimizing human capital, ERP provides a holistic view of organizational resources, including HR operations, to improve efficiency across all departments and for all assets.

Choose the right HCM for your business 

When you follow the steps above and consider the key objectives for your organization, you’ll find an HCM platform that aligns perfectly with your needs and goals. 

Take your time getting clear on strategy and desired outcomes, keep your integrations top of mind, and loop in all key stakeholders to pave the way for a smooth adoption and many years of success ahead.