An Introduction to Human Capital Management (HCM)

In today’s increasingly challenging global competition, people—personnel, human capital—are the last arsenal of competitive advantage. Products can be quickly and easily duplicated and services inexpensively copied; but innovation, execution, and knowledge cannot be copied and are much more difficult to gain as assets. The collective talent within organizations is their prime source of competitive advantage.¹

In this global economy, products are developed quickly and cheaply, and people are willing to change jobs frequently. Smart, committed, experienced individuals who are technologically literate, globally aware, and operationally agile comprise the new competitive advantage. As demand for this talent rises, supplies diminish; this long-term trend will trump short-term aberrations such as the recent financial collapse. As a result, companies are increasingly recognizing the need to transform the traditional human resources function and establish a Human Capital Management (HCM) environment that leverages the workforce as a competitive tool in the marketplace.²

HCM is an important discipline that combines technology systems with advanced methodologies to help businesses build, manage, and maintain their “human assets,” and leverage them effectively to achieve and maintain competitive advantage.³ HCM is also commonly referred to as Human Resource Management (HRM) or Workforce Management.

The Benefits of Human Capital Management

HCM solutions can provide key benefits for companies, delivering tools and technologies needed to improve employee relationship management, raise satisfaction and morale, minimize turnover, and create a stronger, more motivated, and loyal workforce. Beyond eliminating manual administrative procedures, increasing the efficiency of human resources departments, and minimizing the costs related to acquiring staff and attending to all facets of their employment, HCM can help companies create more employee-centric cultures.⁴

The theoretical basis of HCM is founded on the premise that employees are individuals with varying needs and goals, and thus should not be considered as typical business assets such as equipment or facilities. The discipline takes a positive view of workers (i.e., that workers want to contribute to the enterprise productively), and considers that the main obstacles to worker endeavors are lack of knowledge, inadequate training, and failures of the employee management process. Practitioners see HCM as more proactive and innovative than traditional workforce management processes. It features techniques and methodologies that compel enterprise managers to articulate goals with specificity, making them more easily understood and worked toward by employees.

HCM also provides employees with the necessary resources to accomplish their work successfully. As such, HCM should express the goals and operating practices of the larger enterprise, facilitate productivity and competitive advantage, and play an important role in risk reduction.⁵

For the last two decades, special attention has been paid to the link between HCM and organizational performance, as evidenced by improved employee commitment, less turnover, lower levels of absenteeism, greater skill attainment, higher productivity, enhanced quality, and more efficient practice.⁶ Within this arena, sometimes called strategic HCM or strategic HRM, three strands of work predominate: best practice, best fit, and the resource-based view (RBV). ^{7, 8}

Best practice proposes that the adoption of specific best practices in HCM will result in better enterprise performance.⁹ These practices typically include providing employment security, selective hiring, comprehensive training, sharing information, self-managed teams, higher pay based on company performance, and the reduction of status differentials.

Best fit contends that HCM improves performance when a close vertical fit is achieved between HCM practice and the overarching enterprise strategy. This ensures close coherence between HCM processes and policies and the external market and business strategy. For example, lifecycle models maintain that HCM processes can be mapped to an organization’s development or lifecycle.¹⁰ Such an approach presupposes that the strategy of an organization can be identified; this is not an easy task with organizations that are in a state of change and development.

A number of observers contend that the resource-based view is at the center of modern HCM practice.¹¹ RBV centers on the internal resources of an organization and how they contribute to competitive advantage. These resources are preferred when unique or special, and HCM is considered to have a key role in resource development: developing those that are valuable, difficult to emulate, and effectively organized for deployment.

Human Capital Management Functionality

HCM solutions offer powerful, feature-rich functionality that provides full automation of—and support for—core human resources processes and activities, including:¹²

Planning and Modeling:    

• To help businesses establish the most efficient and effective organizational charts and chain-of-command structures
• To more clearly define roles and responsibilities across an enterprise

Recruiting and Staffing:

• To improve how open positions are created, described, and managed
• To provide businesses with the tools needed to find and attract the best possible candidates for the organization

Onboarding:

• To facilitate and speed the procedures and tasks associated with setting up and integrating new employees

Performance Management:

• To formalize and streamline review and evaluation processes
• To keep track of employee performance records

Benefits and Compensation Administration:

• To manage salaries, bonuses, health benefits, and other forms of compensation
• To ensure that payment packages are competitive and fair
• To make sure that incentive plans are compelling enough to keep staff members motivated and energized
  

Time and Attendance:

• To help track employee hours (standard and overtime)
• To monitor the utilization and availability of vacation, sick, and personal days

Training and Education:

• To ensure employees’ knowledge base for productive performance of work
• To provide opportunities for professional goals and skills growth