What is human capital management (HCM)?
Human capital management (HCM) transforms the traditional administrative functions of human resources (HR) departments—recruiting, training, payroll, compensation, and performance management—into opportunities to drive engagement, productivity, and business value. HCM considers the workforce as more than just a cost of doing business; it is a core business asset whose value can be maximized through strategic investment and management—just like any other asset.
The definition of human capital management
The term HCM can refer both to a business strategy and a set of modern IT applications and other technologies that are used to implement that strategy. Though sometimes used interchangeably, the terms related HR, HRMS, and HRIS do have subtle distinctions:
HR
Refers to a set of traditional employee management functions that includes hiring, job and position management, HR compliance, and reporting.
HCM
Encompasses the same processes, but also includes workforce rewards and talent and workforce management
Talent management
Looks at the strategic management of talent throughout the talent lifecycle. It includes sourcing and recruiting candidates, goal and performance management, learning and career development, talent review, and succession management.
Workforce rewards
Refers to all HR functions that manage any monetary or nonmonetary rewards including compensation, benefits, or payroll.
Workforce management
Involves all HR functions that are related to positive and negative time management including time and labor and absence management.
HRMS
Refers to the set of applications and other technologies that support and automate HR processes throughout the employee lifecycle. While the terms HCM and HRMS are often used synonymously, HCM puts particular emphasis on the strategic approach to managing employees.
HRIS
Originally referred to keeping administrative employee records. It has been largely replaced by the term HRMS. In practice, HRMS and HRIS are virtually interchangeable terms.
Key benefits of a HCM solution
A complete HCM solution connects all HR processes, including recruiting, global HR, compensation, benefits, talent management, learning, workforce planning, work-life solutions, time tracking, and payroll.
With HCM solutions, businesses can make smarter and faster decisions, deliver a best-in-class employee experience, and leverage embedded cutting-edge technologies, such as artificial intelligence (AI) and chatbots to automate workflows, improve efficiency, and engage quickly.
Attract and retain talent
- Increase hiring speed and quality by quickly sourcing and recruiting the right candidates
- Increase engagement with work-life solutions that help motivate employees and deliver a superior employee experience
- Retain and nurture talent by providing professional learning and growth opportunities
- Increase bench strength by proactively planning for succession in leadership and other key roles
Respond with agility to change
- Align people strategy with business strategy
- Anticipate workforce attrition with powerful insights
- Adjust the workforce quickly to organizational changes
- Tailor HR processes to account for unique needs
Optimize workforce management and spending
- Differentiate compensation by allocating the right mix of monetary and nonmonetary rewards
- Manage time and labor, scheduling, and related expenses
- Maintain expenses for specific projects and other costs
- Build a pay-for-performance culture
Streamline HR operations
- Consolidate disparate HRMS
- Leverage analytics for more intelligent workforce decisions
- Automate manual processes globally and locally
- Accelerate HR processes with self-service
The functional components of HCM solutions
HR
Simplify your HRIS systems and manage your entire workforce with a single, global system of record.
- Employee lifecycle: Manage from hire to retire for all employees, full-time and contingent, with localizations for more than 200 countries and jurisdictions.
- Strategic HR: Track personal and employment information, create job structures, manage employee documents, and predict performance and attrition with a single solution.
- HR service delivery: Enable manager and employee self-service on any device and provide an HR Help Desk for sensitive HR cases.
- Employee engagement: Motivate your people with wellness, competitions, volunteering, and personal branding tools.
- Compliance and fraud detection: Improve health and safety through incident reporting and safeguard your data through fraud detection and autonomous security.
Talent management
Enable organizations to manage the entire talent lifecycle—from effectively sourcing and recruiting to onboarding new hires, managing goals and performance, rewarding for performance, providing continuous learning, developing careers and conducting talent reviews and planning for best-fit successors—all while keeping employees engaged.
- Talent acquisition: Present a compelling candidate-centric experience and match the best-fit candidates to jobs by leveraging innovative technologies.
- Performance management: Align individual and business goals and support employees with frequent checkpoints to optimize performance.
- Career development: Identify career opportunities and maintain a development plan to bring employees closer to their career goals.
- Talent review and succession management: Evaluate macro-organizational talent trends and proactively plan for future needs in leadership and other critical roles.
- Learning: Meet the learning demands of the modern workforce and keep employee skills current. Leverage embedded intelligence to provide a tailored learning experience.
Workforce management
Control labor costs, reduce manual processes, and simplify compliance for all of your employees, globally.
- Compensation: Analysis, modeling, budgeting and administration of local and global compensation plans.
- Total compensation: Deep insight into all compensation activity to executives, managers, and employees.
- Pay-for-performance: Leverage performance ratings, goal attainment, and other metrics into compensation calculations.
Workforce rewards
Attract and retain the right talent and drive value through a differentiated workforce rewards strategy. Maximize the accuracy of payroll and compensation data using modern and innovative technology.
- Compensation: Analysis, modeling, budgeting and administration of local and global compensation plans.
- Benefits: Deliver flexible benefit program options that adapt to unique business needs.
- Payroll: Process payroll and support compliance by delivering accurate payroll, tax reporting, and regulatory rules.
What is HCM (human capital management) software?
HCM (human capital management) software is an integrated suite of technologies that can help businesses manage their employees, from hire to retire. HR software applications are referred to as:
- HRIS (human resources information system). What is HRIS?
- HRMS (human resources management system). What is HRMS?
- HCM (human capital management)
HCM software supports a range of HR functions, including recruiting and talent management, payroll, and benefits administration. These integrated modules include your organization's capabilities to manage the complete employee experience.
HCM software can be run and accessed in the cloud or on-premises at your company’s location. By leveraging cloud-based HCM software, businesses can significantly reduce maintenance costs, increase access, improve employee experience, and bolster the security of employee records.
Additionally, HCM software manages employee data in a database. Leading HCM cloud software providers offer advanced analytics, helping employers gain insights into the best way to manage their employees.
HCM—A brief history
The term “human capital” was first used in the 1950s and 60s as computing began to accelerate the automation that had begun in the industrial age. Economists and business people began to see employees not as replaceable units completing routine tasks, but as knowledge workers with specific skills and talents that could fuel business growth.
Not surprisingly, the term returned to prominence with the rise of the internet in the late 1990s. New technologies were rapidly automating a whole new set of business processes. While the internet changed the how employers and managers worked and collaborated. All of this change meant that workforce leaders had to transform how they went about attracting, retaining, and engaging talent in an evolving set of job roles.
This decade could be called The Golden Age of HCM. New digital technologies are enabling HR leaders to provide a more engaging and personalized employee experience at scale. At the same time, emerging technologies, such as data automation, predictive analytics, and artificial intelligence (AI), have added new innovations for understanding, managing, incenting, and engaging the workforce. And HR leaders have a whole new set of tools that can maximize the value of their workforce, from intelligent, social-driven recruiting and personalized retention practices to highly optimized compensation.
HCM in the cloud
The cloud and software-as-a-service (SaaS) delivery models are quickly becoming the new normal for HCM technologies. The cloud approach accelerates deployment, turns variable capital expenses into fixed and transparent operating expenses, lowers IT costs, and drives agility by speeding and simplify upgrade paths.
Although there are many SaaS HCM providers, they are not all alike. In evaluating vendors and solutions, businesses need to ask key questions as they consider not just the HCM capabilities they want today, but the ones they will need in the future.
- Will the provider be around for the long term?
- Does the provider invest in innovation?
- Will the provider be able to secure highly sensitive employee data?
- Can the provider keep data in country-specific locations for regulatory reasons?
- Can you decide on your own upgrade path and timing?
- Will you be able to integrate HR processes with ERP, CRM, and other business processes, quickly and easily?
The future of HCM
Clearly, technology is disrupting the world of work as we know it. New technologies are changing business strategies, eliminating job roles, and creating new work opportunities. But while traditional hierarchical structures are changing, the workforce is transforming as well—into flatter, more agile networks of teams, becoming more mobile, global, and diverse. HCM too, is evolving rapidly. Expect to see accelerating adoption of already-familiar technologies, such as SaaS and mobile, as well as leading-edge technologies, from machine learning to AI.
- Mobile increases engagement and productivity by empowering HR, workers, and managers with consumer-grade, self-service mobile apps.
- Social improves productivity for everyone when being able to collaborate with peers and mentors in the organization.
- Chatbots serve constituents faster and more efficiently with answers.
- AI augments what is not humanly possible, such as quickly mining thousands of resumes and data points to find best-fit candidates.