What is human capital management: overview, elements & benefits

Human capital management (HCM) sees employees as capital, meaning the workforce serves as the lifeline of companies. Employees are an essential resource that drives business growth, innovation and success.

While often used interchangeably and overlaps with human resource management (HRM), HCM has distinctive functions. This HR approach focuses on the human capital’s (a.k.a. employees) economic value to the organisation.  

Economic value, by definition, is a benefit derived from a good or service. Organisations capitalise on employees’ knowledge and skills and invest in people’s training or education to increase productivity and profitability.

Elements of human capital management

HCM involves three key human resources processes to raise the bar on employee performance and achieve desired success parameters, including:

1.    Hiring and onboarding

Like human resource management, human capital management considers hiring, onboarding and new hire training as core HR processes.

Recruiting the best talent whose values and skill sets align with a company’s value proposition is an essential aspect of HCM. HR managers look for capable and self-motivated candidates who will thrive and meet the business needs and changing requirements. 

 

2.    Talent management

Disengaged employees have lower productivity levels than happy employees—they don’t bring much value to the business compared to their counterparts.

HCM covers this productivity challenge and addresses it through talent management, a strategy for retaining, engaging, and motivating employees. It tackles all aspects that influence employee’s performance, from payroll to performance appraisal, feedback and rewards systems, and more.

 

3.    Workforce development

Talent or workforce development is another crucial element of human capital management. This HR strategy helps organisations assess the current workforce, as well as their future talent needs.

Through this approach, HR leaders can also upskill employees for career growth in the form of training programs, coaching, succession planning, and promotion or job advancement, to name a few.

Benefits of human capital management

1.    Find the right candidates

Companies embracing HCM invest in their employees and seek to grow their human capital in the future. It’s easier for them to attract best talents and expand their operations because they have a clear picture of their needs.

In short, human capital management enables recruiters to hire candidates with most relevant job-specific skills and experiences. It also allows them to improve the onboarding process and fill job vacancies quickly.

 

2.    Boost employee morale

Since human capital management ensures that employees receive their salaries and prioritises a solid performance management system, businesses can also enhance employee morale and satisfaction.

When workers are acknowledged for their contributions and feel valued, they’re more likely to stay motivated at work. Their day-to-day activities become more meaningful, helping create healthy work relationships.

 

3.    Retain top talents

Retaining top talents is important for many reasons—it creates a stable workforce, improves productivity, reduces turn-over rates, increases revenue, and more.

HCM includes several initiatives, such as upgrading employee’s skills, developing career plans, and providing continuous feedback. When done correctly, these strategies can help companies win over and retain best talents.

 

4.    Drive business growth

The benefits of effective HCM strategies, from attracting top talents to enhancing employee satisfaction and improving employee retention, all boil down to one major advantage: business growth.

Employees are the most vital resource every organisation has; they can produce results and revenue, which can help companies remain operational, achieve objectives and reach new heights. 

Summing it up

Developing a happy, productive, and sustainable workforce is key to business success. For this reason, HR professionals should plan and implement a solid human capital management strategy. 

At Unit4, we offer an HR solution that touches the significant elements of HCM—Prosoft HRMS. This HR technology takes care of employee data, supports performance management, streamlines payroll information, and improves recruitment processes.

Request a free personal demo with our experts today and learn how Unit4 Prosoft can help you maximise the value of the people in your organisation.