Human capital management (HCM) is the process of hiring the right people, managing workforces effectively and optimizing productivity. It has evolved from a mostly administrative function to a critical enabler of business value.

What is HCM?

What are the elements of HCM?

Human capital management is made up of a series of administrative and strategic applications that include:

Benefits of human capital management

Human capital management can improve workforce productivity and help HR managers hire, engage and retain employees. In an integrated HCM solution where HR services are unified, you may also be able to eliminate costly redundancies and synchronize data into a trusted source of decision-making.

Human capital management challenges

If you’re like most businesses, you might be concerned about overcoming today’s obstacles and anticipating tomorrow’s needs. Here are some common challenges that human capital management can help you address:

  • Talent strategy

    There are many opportunities throughout the employee lifecycle to engage your people and align their performance with your business goals.

  • User experience

    Technology that’s intuitive and easy to use can increase workforce productivity and improve morale.

  • Big data

    From optimized schedules to competitive compensation packages, data can power better decisions.

  • Administrative burdens

    Tools and resources that save time allow you to focus more attention on business strategy.

  • Systems integration

    Integrated systems may save you time, resources and money. They also help maintain visibility across borders.

  • Compliance

    Sound data and proactive approaches to changing regulations can help you maintain compliance.

  • Data security and privacy

    Gold-standard protections and assured response measures are critical to data security.

Why human capital management is important

Human capital management strategy is critical to your success because payroll and HR cross every functional area of your organization and affect every employee. Evolving market forces also make HCM increasingly important. These trends include:

  • Changing workforce demographics and the ability to get work done in remote environments
  • An expanded availability of contract-based and freelance employees
  • Increasing compliance regulations in both Canada and other countries
  • Tightening labour markets and the need for specialized skills
  • The prevalence of team-based work structures
  • An explosion of available workforce data

How human capital management technology can help your organization

HCM technology presents an opportunity to deliver strategic workforce optimization for your business. It can help you:

  • Make data-driven decisions

    Predictive analytics and forecasting may lead to better decisions about compensation packages, work schedules and more.

  • Encourage business growth

    Cloud-based solutions that are adaptable and expandable allow for the management of more employees, transactions and data.

  • Increase profitability

    Automated workflows that replace manual tasks may reduce direct labour costs and administrative expenses.

  • Optimize talent strategies

    Chatbot-assisted applicant screenings, multimedia-based training and mobile self-service options are just a few of the ways technology can improve how you attract and retain talent.

  • Secure data

    Multi-layered protection and public-facing security alerts can help prevent data breaches and fraud.

  • Improve regulatory compliance

    Global and local monitoring capabilities may allow you to stay current with changing regulations.

What is human capital management software?

HCM software is an aggregate of multiple HR systems that use mobile and cloud-based technology to process data, run reports and create a smooth end-user experience. There are generally two types of service models – best of breed and unified.

With a best of breed approach, you purchase the applications you need from different vendors. This gives you greater depth of functionality, but also more complexity because you’ll have multiple vendors, contracts and user experiences. A unified solution, on the other hand, means working with just one vendor for all your HCM needs. Although this model maybe simpler to maintain, the features are often not as robust as best of breed systems.

How to choose a human capital management system

Choosing the right HCM partner for your organization is sometimes a daunting task, but it can be achieved with a focused, organized and strategic buying process.

  1. Build a requirements checklist that outlines the business goals dependent on HCM and how not achieving them will impact your organization. This can help you evaluate HCM solutions that best fit your needs.
  2. Create a plan of action that includes project scope, necessary resources, budget and team leaders.
  3. Identify the internal stakeholders who will be most affected by the project and keep them informed at all times.
  4. Familiarize yourself with your organization’s approval process for transformative projects and outsourced solutions.
  5. Secure stakeholder approval by presenting the solution and highlighting the business, financial and end user benefits. An HCM business case template can help you make your point effectively.

Human capital management FAQs

See what other HR professionals are asking about human capital management:

What is human capital?

Human capital is the economic value of a worker’s experience and skills including education, training, intelligence, health, and other things employers may value such as punctuality. Employers can improve human capital by building it.

How do you build human capital?

Building human capital requires that you invest in your workforce. You can do this by:

  1. Hiring talented individuals for open positions
  2. Monitoring their performance regularly
  3. Enhancing their skills with on-going training and education
  4. Retaining them with competitive pay, benefits and other incentives

What are three human capital examples?

Human capital can be broken down into three types:

  • Knowledge capital, such as education and work experience
  • Social capital, such as health and professional network
  • Emotional capital, such as creativity and soft skills

What are the roles of human capital management?

Human capital management focuses on adding value to an organization’s employees. It includes the process of hiring the right people, managing workforces effectively and optimizing productivity. It has evolved from a mostly administrative function to a critical enabler of business value.

What's the difference between human resources management and human capital management?

Although similar in many aspects, the difference between human capital management (HCM) and human resources management systems (HRMS)is the size and breadth of their service packages. HRMS often provide core HR functions for small to mid-sized businesses, while HCM offers comprehensive applications across the entire employee lifecycle and can accommodate enterprise-level organizations. Detailed analytics and reporting are also typically included with HCM.

Does HCM include payroll?

Most fully-integrated HCM solutions automate payroll, which saves time and reduces error-prone data entry.

What are the functions of human capital management?

HCM covers the basic functions of HR – payroll, time and attendance, and benefits administration – as well as aspects of workforce management, such as employee training, engagement and retention, and compliance.

What are the objectives of human capital management?

The objectives of HCM are to enable strategic growth, empower employees and connect people and workflows in ways that support daily operations. To help achieve these goals, some solutions provide experiences that are personalized by function, location, team and individual.

What is an example of human capital management strategy?

Examples of human capital management strategy include payroll, recruiting, onboarding, talent management, benefits, time and attendance, reporting & analytics, compliance, and more.

What does a HCM consultant do?

A human capital management consultant works to create economic value for a business by developing workforce strategies to drive workforce engagement, productivity, and business value. This includes transforming traditional admin functions of HR including recruiting, training, payroll, compensation, and more.

This article provides practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal advice or other professional services.