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Human capital management (HCM) has many moving parts, from processing payroll to maintaining a company’s talent pipeline. HCM can even mean establishing a work culture that encourages collaboration. But that’s just the beginning.
Four key takeaways about HCM
- HCM goes beyond traditional HR, encompassing everything from recruitment to retirement, focusing on employee development as a strategic asset
- Effective HCM fosters a flywheel effect, where positive experiences lead to engaged employees and a culture that attracts top talent
- By centralizing HR functions and automating processes, HCM improves efficiency and allows for more strategic focus
- Whether you’re a small business or a large enterprise, HCM principles can be applied to optimize your workforce management
HCM also uses data analysis to improve HR functions and manage compliance-related tasks. It creates competitive employee benefits packages that team members will appreciate and that attract job seekers.
But what if you are hearing the term HCM for the first time? In this guide, we break down what HCM is, what it includes, and why small to large businesses have something to gain by utilizing this beneficial tool for their people and workplace culture.
What does a human capital management system do?
In most cases, a human capital management (HCM) system is a comprehensive suite of tools and processes designed to assist organizations in effectively managing all facets of their workforce throughout the employee lifecycle.
HCM parallels a business flywheel in the following cycle:
- People and culture teams create positive recruiting experiences
- This leads to satisfied new hires and seamless onboarding
- These hires develop into engaged, long-term employees
- The resulting positive work culture attracts top talent
- Leading back to step 1
This cycle is sustained by:
- Valuing employees from day one
- Providing upskilling opportunities
- Fostering a work environment where people feel appreciated
Generally, this effort — and supporting workflows — is the purview of the HR team. Now that we’ve had a high-level overview, let’s talk more about specifics.
What elements does HCM typically include?
In a company’s operations, HCM often refers to those first steps to attract top new hires to tackle the ongoing tasks that keep an organization moving forward. This may include:
Pipeline preparation
Even the most productive entrepreneurs will need to delegate tasks as their companies grow. Not only enterprise-level organizations, this can also include smaller organizations with 5–20 employees. So, having a process of finding, evaluating, and selecting top candidates for open roles can be a difference-maker. HCM systems can be tasked with everything from setting up a career website for job seekers, to encouraging HR teams to use recruiting tools such as LinkedIn to cast a wide net and proactively reach out to potential candidates.
Succession planning
It might be surprising to hear, but HCM systems can also be used as a strategy to help organizations identify potential future leaders from existing employees. For employers looking to retain top performers and prevent junior-level employees from moving on before opportunities open up, this can be a huge help. How? One way is to use an org chart to see the company’s hierarchy. This can help HR teams understand who is close to retirement, or when lateral moves might be opening up for those workers looking to keep the pace of their career in motion.
Creating company culture
HCM systems focus on improving the overall employee experience by providing tools for communication, employee engagement, and recognition. Features like employee surveys and feedback mechanisms help organizations understand employee sentiment and improve workplace satisfaction.
Data to deliver an ideal employee experience
HCM can help businesses looking to build a longstanding work environment with ideals, repeatable processes, and are built for employee retention, HCM could help. On one hand, you’ll get access to data that was not previously at your fingertips. Predictive analytics and forecasting may lead to better decisions about compensation packages, work schedules, pay rates, or benefits.
Education for everyone on staff
One of the tenets of HCM is doing what you can to retain the talent you value most. So, providing professional learning and growth opportunities factors in here, too. Think of it this way: talented, invested employees looking to add to their skills won’t find the need to look outside your doors to do so.
Picking perks employees want
When it comes to finding an employer, in addition to a competitive salary, job seekers make no secret about the benefits they are looking for. This is more than health and life insurance, or access to a 401(k). Some employees expect other benefits to be standard, such as paid time off (PTO), flex or remote work schedules, and childcare or gym memberships. HCM should handle the heavy lifting of managing the deductions for each and making it simple for employees to pick and choose the benefits they want.
Managing compensation and compliance
Once new hires are onboard, part of an HCM’s purpose is making sure that employees get paid on time, as well as having processes in place that keep employers compliant.
Paying employees today and tomorrow
Most companies have a structure in place for paying employees. The next step is thinking about compensation planning. This is the concept and tracking of long-term effects of how wages keep the well-being of your top performers in mind. It’s important to keep up with inflation, help employees to live a quality life, and also encourage your most productive employees to stay with you. Another element beyond a paycheck is offering employee training so that workers feel rewarded and know that they can obtain more skills by staying put.
Keeping ahead of compliance
Most states have requirements that employers must comply with. These might include reporting new hires, purchasing workers’ compensation insurance, or even regulations that require some employers to offer access to retirement savings. Another element of HCM is understanding the rules where you do business and being sure that you have procedures in place to keep up with each one.
Why human capital management (HCM) is valuable
There are many pros to taking an HCM approach to your business. For teams that have HR personnel, HCM can be seen as “mission control,” where they can have all the functions they need at their fingertips.
Simplified operations
- Once set up, back-office tasks become repeatable with minimal effort
Enhanced focus on strategic tasks
- Frees up time for people and culture teams to build relationships with top job candidates
Having a grasp on HCM can make sense for an organization’s stakeholders as it can have implications for companies of any size. Large enterprises may find that it ties together all facets of HR and managing payroll, while putting a structure in place that everyone can lean on.
For entrepreneurs, or employees in the range of 1 – 20, there are elements that 100% can be used within their companies. Even if you are without a need for a hyper-sophisticated workflow, there are characteristics that can be applied.
Next, let’s touch on a topic that can sometimes trip employers up when thinking about how HCM fits into their organization.
Is human capital management the same as HR?
While human capital management (HCM) and human resources (HR) are closely related, they’re not exactly the same.
| Human Resources (HR) | Human Capital Management (HCM) |
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So, while HCM encompasses it also emphasizes:
- Talent management and development
- Performance optimization
- Workforce planning and analytics
- Employee engagement and culture building
Human capital management (HCM) is worth having a conversation about
Though all companies have different priorities and growth plans, there are elements of HCM that can be valuable for employers of all sizes. Businesses proactively looking to get a sense of how it can help them grow and seasoned companies counting on a helpful repeatable process.
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Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.