Understanding Human Capital Management (HCM)

By Jordhi FarhansyahPublished 10 Jun, 2024

Human capital management (HCM) is a wide and complex concept, but it can be summarized as the process of hiring the right people and effectively managing workforces within an organization.

It has evolved from HR doing mere administrative functions to driving critical decisions that can increase business performance.

What is exactly human capital management and what are the benefits? Let’s deep dive into it in this article down below.

What is Human Capital Management (HCM)?

Human Capital Management (HCM) refers to a set of practices, processes, and systems used by organizations to effectively manage their workforce.

It involves recruiting, hiring, training, managing, and optimizing the employees’ skills, productivity, and overall contribution to the organization. The primary goal of HCM is to maximize the value and efficiency of human resources within an organization.

Scott McNealy, CEO and co-founder of Sun Microsystems said that the value of a business is a function of how well the financial capital and the intellectual capital are managed by the human capital. You’d better get the human capital part right.

HCM is often supported by technology, such as Human Resource Information Systems (HRIS) and Human Capital Management software, which help automate and streamline HR processes, improve data accuracy, and provide insights through analytics.

Here are some of the terms related to HCM.

HR

HR refers to a set of traditional HR functions like hiring, attendance management, job and position management, HR compliance, payroll, and reporting.

HCM

Having the same process like HR, but also includes compensation and benefit management, employee performance management, and also talent management.

Talent Management

It involves the management of talent through its lifecycle. It includes sourcing and recruiting, performance management, career development, and succession planning.

Workforce Rewards

HR function that manage all compensation and benefits for employees.

HRMS

HRMS or Human Resource Management Software is a set of software and technologies that support and automate HR processes. The terms HCM and HRMS are often used at the same time, but HCM emphasizes more on the strategic approach on employee management.

HRIS

HRIS or Human Resource Information System is a software to streamline HR processes like attendance automation, payroll management, and other administrative HR tasks. In practice, both HRMS and HRIS are interchangeable terms.

Read more: Examples of AI in HR and Recruitment Enhancement

What are the Key Benefits of Human Capital Management?

Here’s an explanation of the key benefits of HCM.

Enhanced Employee Engagement

HCM practices focus on creating a positive and supportive work environment. This includes recognizing and rewarding employee contributions, providing opportunities for professional development, and fostering open communication.

Engaged employees are more likely to be satisfied with their jobs, committed to the organization, and motivated to contribute to its success.

Benefits:

  • Higher job satisfaction.
  • Increased loyalty and reduced turnover.
  • Improved morale and workplace culture.
  • Enhanced employee productivity and performance.

Improved Talent Acquisition and Retention

Effective HCM strategies help organizations attract and retain top talent. This involves creating a strong employer brand, offering competitive compensation and benefits, and providing clear career development opportunities.

Retaining skilled employees reduces the costs associated with high turnover and ensures continuity in critical roles.

According to Betterup.com, effective HCM practices go beyond recruitment. They foster employee commitment and satisfaction, leading to better retention rates. When employees feel valued and supported, they are more likely to stay with the organization.

Benefits:

  • Access to a larger pool of qualified candidates.
  • Reduced recruitment and training costs.
  • Greater organizational stability and knowledge retention.
  • Increased competitiveness in the job market.

Increased Productivity

HCM optimizes workforce management by aligning employee goals with organizational objectives, providing necessary training, and ensuring efficient allocation of resources.

By focusing on employee strengths and addressing areas for improvement, HCM helps maximize individual and team productivity.

Benefits:

  • Improved efficiency in work processes.
  • Higher output and better quality of work.
  • Enhanced ability to meet deadlines and achieve business goals.
  • Greater innovation and problem-solving capabilities.

Better Decision-Making

HCM systems provide access to accurate and real-time data on various aspects of the workforce, such as performance metrics, employee satisfaction, and turnover rates.

This data-driven approach allows managers to make informed decisions regarding hiring, promotions, compensation, and workforce planning.

Benefits:

  • More strategic HR planning and forecasting.
  • Identification of trends and potential issues before they escalate.
  • Enhanced ability to measure and track the impact of HR initiatives.
  • Improved alignment of HR strategies with overall business goals.

Cost Efficiency

By streamlining HR processes, automating routine tasks, and reducing administrative overhead, HCM helps organizations save time and money. Efficient management of human capital also leads to better utilization of resources, reduced errors, and minimized compliance risks.

Benefits:

  • Lower administrative and operational costs.
  • Reduced need for manual intervention in HR processes.
  • Savings from decreased turnover and training expenses.
  • Enhanced ability to allocate resources to strategic initiatives.

Overall, HCM provides a comprehensive framework for managing an organization’s most valuable asset—its people.

By focusing on engagement, talent management, productivity, informed decision-making, and cost efficiency, HCM helps organizations achieve their strategic objectives and maintain a competitive edge in the market.

What are the Functional Elements of HCM?

There are several elements that can shape HCM into strategies for better employee management. Each element plays an important role and contributes to the organization’s performance and productivity. Here are some of the elements.

Recruitment and Onboarding

This involves managing the entire process of attracting, selecting, and integrating new employees into the organization.

It starts with identifying the need for new hires, crafting job descriptions, and sourcing candidates. The selection process includes screening applications, conducting interviews, and making job offers.

Onboarding is the final step, where new hires are introduced to the company culture, policies, and their specific job roles.

Key Activities:

  • Job postings and advertisements.
  • Resume screening and interview scheduling.
  • Background checks and reference verification.
  • Orientation programs and initial training sessions.

Performance Management

Performance management is about setting performance standards and expectations, regularly evaluating employee performance, and providing constructive feedback.

The goal is to align individual performance with organizational objectives, identify areas for improvement, and recognize high performance.

Key Activities:

  • Setting SMART goals (Specific, Measurable, Achievable, Relevant, Time-bound).
  • Conducting regular performance appraisals and reviews.
  • Providing feedback and coaching.
  • Implementing performance improvement plans and recognizing achievements.

Read more: Difference between KPI and OKR

Learning and Development

Learning and development focus on identifying the training needs of employees, offering development opportunities, and fostering a culture of continuous learning.

It aims to enhance employees’ skills and competencies to meet current job requirements and prepare them for future roles.

Key Activities:

  • Conducting training needs assessments.
  • Developing and delivering training programs and workshops.
  • Supporting employee certifications and educational pursuits.
  • Creating mentorship and coaching programs.

Compensation and Benefits

Compensation and benefits is one of the most important elements that can keep your employee stay for a long time.

This element involves designing and managing employee compensation packages and benefits programs to ensure they are competitive and aligned with organizational goals. It includes salary administration, bonuses, health insurance, retirement plans, and other perks.

Key Activities:

  • Conducting market salary surveys.
  • Designing pay structures and incentive programs.
  • Managing employee benefits enrollment and administration.
  • Ensuring compliance with legal and regulatory requirements.

Employee Engagement

Employee engagement initiatives aim to enhance motivation, satisfaction, and commitment among employees. Engaged employees are more likely to be productive, loyal, and contribute positively to the organization.

Key Activities:

  • Conducting employee satisfaction surveys.
  • Implementing recognition and reward programs.
  • Promoting work-life balance initiatives.
  • Encouraging employee participation in decision-making processes.

Workforce Planning

Workforce planning involves analyzing current and future workforce needs and developing strategies to meet these requirements. It ensures that the organization has the right number of employees with the right skills at the right time.

Key Activities:

  • Assessing current workforce capabilities and gaps.
  • Forecasting future workforce needs based on business goals.
  • Developing succession plans for key positions.
  • Implementing recruitment and retention strategies.

HR Analytics

HR analytics utilizes data and statistical methods to gain insights into workforce trends, performance, and productivity. It helps HR professionals make evidence-based decisions and measure the impact of HR initiatives.

Key Activities:

  • Collecting and analyzing HR data (e.g., turnover rates, employee performance).
  • Generating reports and dashboards to monitor key HR metrics.
  • Identifying patterns and trends to inform strategic planning.
  • Using predictive analytics to anticipate future HR needs and challenges.

These functional elements collectively form the backbone of HCM, enabling organizations to effectively manage their workforce, drive performance, and achieve strategic objectives.

Mekari Talenta as HCM Solution

Mekari Talenta is one of cloud-based HCM software with many integrated technologies that can help organizations manage their workforce cycle, from hiring to offboarding.

It supports a wide range of HR functions such as recruitment, payroll, attendance management, talent management, and also performance management. These integrated features were built not only to enhance productivity and engagement, but also employee experience.

Mekari Talenta with its software-as-a-service (SaaS) model and leveraging cloud technology can greatly reduce infrastructure costs, enhance data security, and drive efficiency by simplifying the HR process.

According to Gartner’s Voice of the Customer for Cloud HCM Suites for 1,000+ Employee Enterprises, Mekari as a brand is placed as one of “Strong Performer” among many HCM softwares that exceed the market average overall experience.

One of the components that is taken into consideration for this insight is willingness to recommend from customer reviews where 100% respondents who review Mekari are willing to recommend Mekari as HCM software.

In conclusion, companies need to assess their current HCM practices and identify areas for improvement. Considering HCM software solutions such as Mekari Talenta to enhance workforce and management capabilities is also another option to consider.

Learn more about Mekari Talenta by contacting our sales team and try our demo for free.

Reference:

What is HCM? – Oracle

What is Human Capital Management – Forbes

Human Capital Management – ADP

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Jordhi Farhansyah
Penulis yang selama 2 tahun terakhir fokus memproduksi konten seputar HR dan bisnis. Selain menulis, sehari-hari Jordhi juga aktif merawat hobinya di bidang fotografi analog.