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Masooma Memon

An Introduction to Human Capital Management

The competition for talent is more fierce than ever. But human capital management practices can help you build the thriving, talented workforce your organization needs.

Employees working in people-centered organizations are:

  • 3.8 times more likely to perform higher
  • 3.2 times more likely to stay with their workplace
  • And, 3.1 times more likely to see lower levels of fatigue

But creating a company that emphasizes employee growth and well-being is not possible without building out your Human Capital Management (HCM) function first.

Why? Because HCM is responsible for managing and optimizing your workforce throughout the employee lifecycle — not just the recruitment stage, which has typically been the focus of HR.

HCM also helps retain employees, gives hiring direction to HR, and a lot more.

Let’s look at the benefits of a Human Capital Management approach in detail, alongside the vital differences between HCM and HR. 

What is Human Capital Management (HCM)?

Human capital management is the process of effectively hiring, managing, and optimizing talent.

In the past, this was a purely administrative task. But over the years, as human-centered workplaces have evolved, HCM has become an essential function that contributes significant business value.

Hiring the right talent is, after all, a game-changer for organizational success. Increasing operational efficiency and creating a productive work environment improves employee experience — boosting performance and retaining employees in the long term, as they become more experienced and knowledgeable. 

Is Human Capital Management the same as HR?

Since both human capital and human resources management involve managing the workforce, it can be easy to confuse the two. 

However, both concepts are different even if they’re closely related.

HCM, for example, is a broader term that involves long-term, strategic workforce planning focused on employee wellbeing and growth.

In contrast, human resource management is a tactical concept with a narrower scope — focusing on the administrative aspect of managing the wider talent pool.

Here’s a brief lowdown of a handful of other differences between these two concepts:

What are the benefits of Human Capital Management for businesses?

From better retaining employees to identifying gaps in an organization’s skill pool, HCM brings a ton of benefits to the table.

Let’s look at these below: 

1. Streamline recruitment

Human capital management works on identifying the skills an organization’s workforce lacks. In doing so, it points out the talent HR needs to hire — enabling strategic staffing.

Additionally, since HCM sets HR in the right direction to hiring specific, needed-on-deck talent, it assists in preventing resource wastage in the human resources department.

What’s more, by hiring and training these specific resources, HR can easily contribute to meeting organizational goals.

Dig deeper: 10 Steps to an Effective Resourcing Strategy 

2. Identify skill gaps

Not only does HCM work on assessing the strengths and weaknesses of your workforce - it also identifies talent gaps.

An effective skills gap analysis, in turn, ensures you’ve got the right people to meet business challenges, efficiently solve problems, and create a knowledgeable work environment where employees learn from each other.

Not to mention, having the full spectrum of skills on board is key to innovation and having an edge over your competitors.

Learn more ➡️ in-depth guide to skill management.

3. Improve employee retention

HCM’s primary aim is employee development. It focuses on optimizing employees’ skills, interests, and competencies while helping them achieve professional growth.

Not only does this assist in building a productive workforce but it also contributes to employees’ career development, helping reduce employee turnover.

Hard to believe? LinkedIn recently found organizations offering growth opportunities are on employees’ top-to-work-at list.

When considering a new job, opportunities for career growth within a company and opportunities to learn and develop new skills are among the top five factors potential applicants look at.

Likewise, 86% of professionals say they’d change their job if they’re offered a role that provides chances for professional development.

Dive deeper: The Ultimate Guide to Employee Retention Strategies

4. Encourage organizational productivity and growth

An HCM strategy can be powerful enough to support business growth by unlocking individual worker’s competencies.

When employees reach their peak potential, they deliver their best work ­— contributing to increased organizational productivity and revenue growth.

Not to forget, as employees work in positions that are best suited to their skill set and interests, managers can unlock operational efficiency.

What are the challenges of Human Capital Management?

On the surface, human capital management might seem like a simple enough concept. However, what’s simple is not always easy, which brings us to the challenges of this field.

Essentially, these depend on how developed your organization’s human capital management arm is.

Generally speaking, common challenges include difficulty in assessing skills, catering to a diverse, multi-generational workforce, talent acquisition and retention, and finding the right HCM software.

1. Compliance and legal requirements

Businesses need to navigate complicated labor regulations and compliance requirements in areas like:

  • Employment contracts
  • Workplace safety
  • Labor relations
  • Data privacy

To add to the challenge, wading through these laws and regulations gets harder still for multinational organizations operating in different countries with varying jurisdictions.

2. Skills gap analysis and training

Finding what’s lacking in your workforce is easier than done — taking extensive work in first analyzing employees’ skills and interests and then identifying lacking skills.

This process also includes chalking out strategies to optimize existing skills and ways to develop new ones.

Thankfully, with Runn you can create a skills inventory that speeds up skills management and talent gap analysis. This inventory lists each employee’s skills and interests in one place, helping HR, HCM, and project managers coordinate on optimizing individual workers’ skills and hiring for new skills (as needed).

3. Catering to a diverse workforce

Yet another challenge is building and managing a workforce with employees from different backgrounds, cultures, experiences, interests, and work habits.

Organizations need to identify and then cater to their varying needs as best as possible.

Workforce across generations or multi-generational talent pools adds to the management challenge.

4. Talent acquisition and retention

About four in five employers say it’s hard to find the skilled talent they need.

This challenge only grows as you try to recruit niche or specialized talent in competitive markets. And once you find and onboard them, retaining them isn’t an easy feat — especially as top talent is frequently headhunted. 

5. Performance management

Organizations often struggle with creating effective performance evaluation systems that push employees to improve while ensuring they aren’t demotivated or disengaged.

This challenge runs hand in hand with developing a culture of constructive feedback and setting the right performance expectations. 

Not to forget, organizations think of performance management as a one-and-done task — never realizing their systems might be outdated or inefficient and no longer serving them. 

6. Technological changes

Human capital management software keeps evolving — offering newer functionalities, integrations, and ease of use. 

Not only is keeping up with them challenging but finding the right HCM system for your business is another tough nut to crack.

 Most of all, shortlisting HCM tools doesn’t just involve finding a user-friendly software. It also includes finding ones that integrate with your tech stack and enable cross-team collaboration without compromising employee data and privacy. 

Wrapping up: Level up human capital management with 3 bonus tips

In short, HCM takes steps to bring out your employees’ optimal potential so they can deliver their best work and drive business innovation.

But to accurately do so:

  • Link your HCM objectives with business objectives. This way, you can devise a strategy that lets you optimize human capital to drive positive business impact.  
  • Talk to your current pool of employees to learn their interests and the skills they want to develop. Then chart a plan to give them the necessary training and opportunities to learn and grow in their position.
  • Use the right tool for visibility into employee skills. This lets you create an inventory for an eagle-eye view of your employee pool’s strengths, weaknesses, and skill gaps.

Book a demo today to learn how Runn can help you optimize your human capital.

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