What is human capital management?
Human capital management (HCM) is a process that HR teams use to attract, recruit, train, and retain employees while helping them maximize their potential. It helps organizations improve employee performance, increase retention, and create a productive workforce. Human capital management benefits organizations by investing in and developing employees’ career paths so they contribute to the business goals and needs of the organization as best they can.
Enterprises use human resource management systems and human capital management software to manage HR information in an integrated, centralized location. Companies use these tools to manage functions like recruiting, performance reviews, and employee training.
Types of human capital
Companies can invest in different types of human capital as part of an overarching human capital management strategy. The three types of human capital to consider are discussed below.
- Knowledge capital. College degrees, hard skills, work experience, situational knowledge, and information about processes and procedures are examples of knowledge capital. Employees contribute knowledge to organizations, and organizations can provide learning opportunities to increase knowledge capital.
- Social capital. This one refers to fostering positive relationships and networks by doing tasks like obtaining helpful information, generating innovative ideas, and gathering resources. Social capital unites employees under a shared set of values and describes how a group works together to achieve a goal.
- Emotional capital. Critical thinking, leadership skills, creativity, emotional intelligence, and problem-solving are examples of emotional capital. These skills and behaviors contribute to a group's overall success.
Essential elements of human capital management
HCM encompasses a wide variety of administrative and strategic HR processes. Some of the most common elements include:
- Traditional HR functions. HCM often includes standard HR functions such as payroll, benefits packages, time and attendance, and performance management. Each function aims to invest in employees and provide a seamless employee experience, centralizing this information in one location.
- Recruitment. Many HCM tools provide recruiting and hiring functionality to help organizations attract and hire new talent. Human capital management makes recruiting hassle-free for candidates so they have the best possible experience.
- Onboarding. Human capital management includes effectively and successfully onboarding new employees. From laying out the role's requirements to familiarizing them with the company culture, thinking about onboarding as part of human capital management helps set team members up for long-term success.
- Training and development. Creating cultures that encourage growth and providing adequate development training is crucial to effective human capital management. Additionally, company training programs should also help employees grow their careers.
Benefits of human capital management
The most significant benefit of HCM is that it helps organizations get the maximum value from their employees by investing in them. Some of the other benefits organizations might experience from HCM include the following:
- Enhanced talent acquisition efforts. An HCM strategy helps businesses attract and retain qualified talent for their open roles. This can speed up the hiring process. An HCM strategy also allows organizations to position themselves as ideal employers to high-value candidates.
- Better employee satisfaction. HCM can help organizations boost employee satisfaction by reassuring them that their happiness and growth are important. Employee satisfaction can positively impact retention rates.
- Capability gap identification. Organizations with solid HCM strategies should be able to identify gaps in the current team's capabilities. Knowing this information helps HR recruit and fill open roles more effectively so that the organization can hire the right people to achieve its objectives.
Human capital management best practices
Developing a human capital management strategy is not a one-size-fits-all approach, but there are some best practices organizations should consider.
- Carry the candidate experience beyond recruiting and onboarding. Organizations should avoid falling into the trap of focusing all efforts and attention on the recruiting and onboarding experience. A robust HCM strategy considers the candidate's experience beyond the first few months as it attempts to provide a positive employee experience with the goal of long-term retention.
- Prioritize investing in existing team members. While organizations need to attract and hire new talent to fill gaps, they should also consider maximizing the potential of current employees by investing in their growth to fill gaps. Investing in staff helps organizations boost organic growth, improve job satisfaction, and increase opportunities.
- Invest in the right technology. Many HCM tools and other related HR software are available for organizations to explore, including human resource management suites, workforce management software, and performance management software. HR teams and other key stakeholders should determine which tools their organization needs to succeed.
Human capital management vs. human resource management
Despite their similarities, human capital management and human resources management (HRM) are not interchangeable terms.
HCM is about maximizing employees' potential to help them fulfill their goals. HRM refers to building systems, processes, and policies to help employees do their current jobs.
Recruiting is a critical component of human capital management. Learn how recruiting automation improves the candidate experience.
Alyssa Towns
Alyssa Towns works in communications and change management and is a freelance writer for G2. She mainly writes SaaS, productivity, and career-adjacent content. In her spare time, Alyssa is either enjoying a new restaurant with her husband, playing with her Bengal cats Yeti and Yowie, adventuring outdoors, or reading a book from her TBR list.
