Human Capital Management: Why It's More than Just HRM With a Makeover


HR Insights for ProfessionalsThe latest thought leadership for HR pros

Wednesday, May 26, 2021

Human capital management can help you get the best out of your people and put your business on the path to greater success. So what can you do to optimize HCM?

Article 4 Minutes
Human Capital Management: Why It's More than Just HRM With a Makeover

Supporting the people in your organization to help them achieve their full potential and deliver the best possible outcomes for the business (and for themselves) should be one of the HR department's top priorities.

If you're able to succeed in this mission, the business will benefit from a more productive and loyal workforce, while employees will gain advantages including a greater sense of professional fulfillment and opportunities for career progression and development.

One of your key areas of focus as you seek to optimize the people component of your business could be human capital management (HCM). While this term is often used interchangeably with human resource management (HRM), there are differences between the two that every HR professional should be aware of.

It's also important to think about your strategy for HCM and whether you need to take action to modernize and reinvent it.

How HCM differs from HRM

According to Gartner, HCM can be defined as a set of practices related to HRM that focus specifically on 'the organizational need to provide specific competencies'. These practices come into play in three key areas:

The global research and advisory firm also highlighted some of the most important functions that enable effective HCM, such as:

  • Payroll and benefits administration
  • Workforce planning
  • Competency management
  • Compensation planning and strategy
  • Onboarding

The debate around what distinguishes HCM from HRM often focuses on the one difference in the wording of these two terms. The former characterizes the people in an organization as 'capital', a term more commonly associated with business assets that are steadily grown and accrued over time and come to represent the company's wealth and success. The word 'resource', on the other hand, is more suggestive of something finite, which is acquired, used and eventually replaced.

This could be seen as purely a matter of semantics and doesn't necessarily give a fair interpretation of the term 'human resources'. However, it’s been argued that the HCM-based view of employees as capital can be a useful and positive way to view your workforce.

According to Giovanna Gianesini of the University of Verona, HCM represents people as assets whose value can be measured and enhanced through investment.

"Human resources is a general term used to represent the people element within organizations. The question is how to translate human resources into human capital and ultimately into human investment. We can say that human capital is a well-employed human resource that is actively engaged in meaningful, worthwhile work and delivering some level of desired productivity." - Giovanna Gianesini

According to Bamboo HR, another key differentiator between these two terms is that HCM describes a wider range of activities, combining HRM processes with other, more strategic functions such as analytics and performance management.

Optimizing HCM

Having a clear understanding of HCM and making a commitment to the concept can lead to a range of valuable outcomes for your company, most notably a happier, better-supported and more capable workforce. This is crucial if you want to seize opportunities and be ready for future challenges that will come your way.

With this in mind, how can you take your HCM to the next level?

Look at the full talent lifecycle

Traditional thinking about managing a workforce and ensuring a business has the people and skills it needs to succeed might focus on recruitment and onboarding. To generate the best results, however, HCM should place just as much emphasis on your existing talent and how to efficiently utilize and develop it.

"Keeping employees happy and engaged in your company now depends very heavily on how you approach the entire employee lifecycle." - Sanjay Sathe, President and CEO of GenomeSmart

Offer opportunities to branch out

People in your business may have proven they can excel in a particular role or discipline, but that doesn't mean they have to stay in that niche. Next-level HCM should provide opportunities for trusted employees to branch out and develop their skills in new fields. This will help you build a more fulfilled, engaged workforce and deliver productivity gains for the business.

In its 2021 Global Human Capital Trends report, Deloitte noted how COVID-19 forced many people to expand their roles to whatever needed to be done, and employees rose to the challenge.

"Worker agency and choice during the pandemic showed that workers can fulfill their potential in ways that leaders may never have known they could, positioning the organization to thrive in the long term." - Deloitte

Drive change from the top

If your efforts to improve your business through HCM require significant change and potential investment, the impetus for the project needs to come from the highest levels of the company.

Full backing from the C-suite will demonstrate that the company is committed to supporting its workforce, providing fulfilling careers and helping people reach their full potential. It will also ensure the HR department is empowered to drive genuine change and get the best outcomes for the organization and its people.

This will prove crucial if you want to truly optimize your HCM efforts and deliver lasting benefits.

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