Human Capital Management (HCM)

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Human Capital Management (HCM): this article explains Human Capital Management or HCM in a practical way. The article starts with a general definition of HCM, followed by an elaboration on why HCM is important and its specific functions in organisations. Enjoy reading!

What is Human Capital Management (HCM)?

Human Capital Management (HCM) is an approach to human resource management that sees the value of human resources in terms of assets.

Usually, assets can be measured in monetary value and can develop by investing in these assets. For this reason, HCM’s approach is to attempt to identify the value of employees and identify opportunities for investment so that the value of human resources increases.

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A crucial element of HCM is, therefore, to continually invest in people to make sure that these human resources provide meaningful work and deliver a desired level of quality. Based on this information, it can be concluded that HCM is concerned with employees from a profit-centered point of view.

Definition of Human Capital Management

Another way to define HCM is: the various processes that businesses use to systematically analyze worker’s performances in terms of human input, associated costs, and gained organizational results.

HCM uses multiple tools, from the start of the employees (including the checklist for onboarding employees) to measure this data which helps to measure processes and performance effectively.

Today, many large corporations utilize different computer programs that help determine the value of HCM. These technologies are also referred to as human capital management technologies and are more cost-effective than previous approaches because of cloud-based programming.

Today’s organizations can manage human resources’ information from any location and at any time because of secure databases that can be accessed around the globe. These cloud-based human capital management technologies also offer benefits to employees.

Employees can access personal and professional information, evaluate the progress of their learning and development plans, and access information about salaries and employee benefits.

Human capital management technologies are becoming more evolved and becoming more accessible to small and medium enterprises. It is an approach that employers use to enhance employee’s knowledge, evaluate their progress, and to finding a way to increase employee retention.

The bottom-line remains that employees are in HCM seen as assets, in which should be invested to increase their engagement and productivity to enrich the company value.

Functions of Human Capital Management (HCM)

Self-service as a core function

The core function of HCM is to achieve self-service for all departments. Both employees as managers must be able to access the required information from any location without the human resource manager directly.

By using an intranet portal where most data is stored, the staff has access to news articles, newly hired employees, information about payment dates or they can even request vacation for some time.

Another function of such a portal is that it can offer a help desk in which employees can ask questions about the work or personal circumstances.

If necessary, an additional appointment can be made to discuss the situation.

Workforce management

The second function of human capital management is that time and attendance can quickly be recorded. Large corporations sometimes have a login portal which marks the time when an employee enters the building until they leave.

This way eliminates mistakes that are frequently made, while simultaneously, the hours worked are recorded. It can additionally help when a labor schedule has to be made.

It can sometimes happen that an employee is working more hours than agreed to the contract. In many cases, these hours must be compensated for, and sometimes, the compensation is higher than the regular salary.

Another reason could that employees work too many hours, and as a result, the employee must take some days off. In this case, human capital management offers help in labor scheduling and identify the best alternative solution if the previously described situation occurs.

Workforce Optimization

The Workforce Optimization of Human Capital Management deals with optimally planning the workforce based on skills and performance. It comprises the whole organization, and with cloud-based programming, the employees at different locations can be managed.

By utilizing this function, analyses can be made easily in terms of invested capital and gained organizational results. If it turns out that an employee has not developed in the period as expected or if the employee has not delivered the desired result, it could be a sign that a change should be made in the workforce planning.

Talent Management

The final function of Human Capital Management is concerned with the whole process of recruiting employees until increasing employee retention.

Human capital management enables human resource managers to work on performance and learning modules. It is additionally used to register compensation and benefit. The talent management function is moreover used to identify top performers. It helps to determine who in the company is ready to grow to a higher position in the organization.

Why Human Capital Management?

HCM is all about saving time on administrative tasks so that the gained time can be spent on investing in employees. This new approach is, therefore, more concerned with the human factor so that personnel development occurs.

With the right integration of Human Capital Management, time will be saved in operational processes. It is not going to be necessary anymore to use different programs to administer data. Besides, HCM software offers full analyses of employees which can be used for making management decisions.

The operational processes will be processed more smoothly. This time can next be invested in, for example, guiding employees to get the best out of themselves.

Another important part is that the saved time can be used to create learning and development plans that truly help the workforce develop until they reach the desired working performance with the desired qualities.

Since employees can be evaluated more efficiently, it is also going to be more obvious who in the team has developed to a level to take over new job positions in the organizations.

Human capital management increases the chance of having satisfied and productive employees. Newly hired, or post-graduates also presents a large portion of the future workforce.

This new generation is technology-driven and wants to have access to their personal information and other desired information related to the job, such as payslips at any place and at any time.

It is therefore essential for today’s businesses to keep up with the new trends and technologies that serve the needs and wants of the millennials.

Conclusion on Human Capital Management

Human capital management is concerned with the value of employees and how this value can enhance business results. It additionally deals with the digitalization process of human resource activities. This reaches a higher efficiency and effectivity in human resource activities.

With the right integration of human capital management, employee engagement will be improved. Communication happens more rapidly because of the continual access to access to information, and lesser mistakes are made.

Human capital management also improves business intelligence in terms of reporting. Computer programs can quickly evaluate employee data and convert this data into detailed reports that next can be used for management decisions. Moreover, the operation goes flawless, and fewer mistakes are made.

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Now it’s your turn

What do you think? Do you recognize the explanation of human capital management? Have you ever heard of HCM? How are human resource activities organization at your work?

Share your experience and knowledge in the comments box below.

More information

  1. Baron, A.,Armstrong, M. (2007). Human capital management: achieving added value through people. Kogan Page Publishers.
  2. Bontis, N., Serenko, A. (2007). The moderating role of human capital management practices on employee capabilities. Journal of Knowledge Management, 11(3), 31-51.
  3. Cooper, A. C., Gimeno-Gascon, F. J., Woo, C. Y. (1994). Initial human and financial capital as predictors of new venture performance. Journal of business venturing, 9(5), 371-395.
  4. Hayton, J. C. (2003). Strategic HCM in SMEs: An empirical study of entrepreneurial performance. Human Resource Management: Published in Cooperation with the School of Business Administration, The University of Michigan and in alliance with the Society of Human Resources Management, 42(4), 375-391.
  5. Snell, S. A.,Dean Jr, J. W. (1992). Integrated manufacturing and human resource management: A human capital perspective. Academy of Management journal, 35(3), 467-504.
  6. Van Marrewijk, M., Timmers, J. (2003). Human capital management: New possibilities in people management. Journal of Business Ethics, 44(2-3), 171-184.
  7. Wright, P. M., McMahan, G. C. (2011). Exploring human capital: putting ‘human’back into strategic human resource management. Human resource management journal, 21(2), 93-104.
  8. Youndt, M. A., Snell, S. A., Dean Jr, J. W., Lepak, D. P. (1996). Human resource management, manufacturing strategy, and firm performance. Academy of management Journal, 39(4), 836-866.

How to cite this article:
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Original publication date: 12/16/2019 | Last update: 11/11/2023

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Alexander Zeeman
Article by:

Alexander Zeeman

Alexander Zeeman is Content Manager at ToolsHero where he focuses on Content production, Content management and marketing. He is also an International Business student at Rotterdam Business school. Currently, in his study, working on the development of various management competencies and improving operational business processes.


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