How Does Human Capital Management (HCM) Work?

All organizations, corporations, and communities strive to earn the most advantage from their human capital and attract the best of them. Everything begins with people, and if we track workflows and values created by each company, we’ll see that everything ends with people, too. Sure, we all work to earn money and realize ourselves, but the measure of our success is the value we’ve brought to people — and the reward we’ve managed to obtain from them. So human capital management practices and HCM systems that facilitate them are essential toolkits to ensure a healthy situation in your organization.

It seems simple: you have people, they need to work, you pay them, and you have your value. But remember how complex people are. According to various studies, humans consist of very complex systems, much more than anything other on Earth. While people may seem plain, it’s always a false impression. Therefore

Lastly, if you have more than 10–15 members in your team and still want them to be connected, no matter where they all are, the HCM engine is indispensable for your human resources matters. So, we’ll explore the world of such software, classify its types, and see when to use each type.

In the end, the human complexity will become your tool.
So we begin.

What is HCM?

The human capital management definition is simple: the complex of actions to ensure the most possible efficiency of all human resources available to your organization, along with their satisfaction.

Human Capital Management Overview
In the diagram, you can see a very short summary of what it includes, so we can reduce the almost infinite complexity of human nature to apply it in the realm of business. There are many such diagrams, actually, and each of them pays attention to the aspects of the matter that are relevant in each specific situation. We’ll try to generalize it from the position of maximizing the efficiency and satisfaction of each individual.
is the stage when you set objectives for your work and search for people who can complete it. All HCM meaning can be summarized in the strategic management of your recruitment.
Competency evaluation
is based on your interview with the person, surveying, and test task completion. It enables you to understand whether to accept them or not and how they can be upskilled.
Performance tracking
includes the usage of performance indicators (KPIs) and other metrics that correspond to how well the work is done. It’s the quantitative indicator showing the areas requiring your attention.
Compliance and motivation
include the standards your company uses and approaches how employees will reach them and stay motivated.
Benefit management
is all about employees’ compensation, employment benefits, bonuses, and a healthy work environment.
include payroll management, completion certificates, and other paperwork that is essential to comply with the law and organize everything properly.
is crucial to ensure the improvement of employees’ competencies, realization, and innovation activity.
As we here are focused on digital solutions, human capital management meaning also includes all platforms that help HR and L&D managers to work with people. All processes mentioned above can, and should, be automatized, especially recruitment, performance tracking, and motivation. Digital tools’ ability to proceed with large amounts of information and connect people from various corners of the world are indispensable in the modern world.

So don’t forget to gain your competitive advantage!

Importance of human capital management

HCM is an indispensable toolset for HR managers. Actually, the term started to appear increasingly in the 2010s, replacing the human resource management (HRM) term used before. According to Afiouni, it’s aimed at emphasizing the complexity of human nature and the value humans can create: they are just resources used to complete something, but a capital that must be properly managed and invested in, so it can generate more value.

That’s true. We are complex and highly productive beings, able to generate innovations, solve complex problems, and cooperate to create true wonders, from architecture to machines. But we need to be managed properly for that. We need to be satisfied, understood, motivated, and well-taught, and all of that needs investments. Human resource management is about organizing a pro

Jamal & Saif’s research shows directly that knowledge-intensive firms investing in human capital, i.e. educating and fostering its people, are much more productive. But today, the world itself is knowledge-intensive. According to the UN recent report, growing globalization, interconnectedness, labor mechanization, and technological development are the major trends nowadays that will dominate the future. Those who harness the power of innovations and knowledge will outperform everyone, so make sure to pass here!

Let’s see several brilliant human capital management examples from recognized companies to see how they empower their people.
is an obvious example: they are focused on self-realization of all their employees, allowing and even encouraging them to spend 20% of their work time on their own side projects.
is a very learning-centered company. It provides a vast knowledge base for all its employees with education courses on virtually all subjects related to technology and science, along with high-level tutors.
maintains fun at work and promotes decentralized decision-making based on the current situation. This approach is labeled holacracy and based on Kumar & Mukherjee research, one can see that it’s highly efficient.

Human capital management benefits

As you see, companies that have a developed and proven approach toward their people are much more successful. All recognized companies, not only the three we’ve mentioned, had their own, often unique approach.

Did you know that only one out of four employees feels confident in their current role, according to Forbes statistics? Others don’t see enough perspectives for them and are willing to look for opportunities in other companies. Human capital management training is what ensures a person’s career advancement and personal improvement, so your employees will be among this 25% and you’ll stay ahead. Don’t let market fluctuations define your fate. Shape it yourself with a proper organization. According to Hitka et al., work motivation has a distinct positive correlation with the education provided.
HCM Benefits
  • Improve Employee Resources Processes
  • Streamline Recruitment
  • Identify Capability Gaps
  • Strengthen Organic Growth
  • Tailor Positions To Employee Skills
  • Boost Operations Efficency
  • Enhance Performance Evaluations
  • Promote Career Planning
Proper management includes self-fixing: if you mention some operation flaw or issue, you can start to solve it instantly. According to Boroujerdi et al., it starts from the personal interaction with each employee, which is the basis of the process, and a properly designed management approach gives large competitive advantages to the company. Therefore, HCM benefits include the increasing sustainability and resilience of the organization. When you identify a gap, you can check the relevant statistics provided by employee work, and see how you can fix it. A proper software that we’ll review further will show you the way to do this, as all of them provide you with productivity reports. Lastly, as people become more interconnected, they are more likely to self-organize and generate useful ideas, empowering your company even more. All of that turns your company into an efficient and ever-evolving social organism.

Such a complex matter requires a complex approach, respectively. Various features of human capital management include motivation, communication, smart work assignment, and result tracking. As we’ll see, each of them focuses on a different level: from connecting with each employee personally to organizing the whole system to work without flaws. Together, all these features form a strategy.

And now we’ll see what it should be.

What is human capital management strategy

So, to go large, everyone needs a strategy.

As Google with its 20% personal enterprise time, IBM with its almost academic approach, and Zappos with its interactive, funny, self-organizing workplace, each company needs to develop its own human capital management plan. While it usually expands on all organizational levels, it may have some specific peculiarity, your own finding, that you can use to enhance your workplace like no others.

According to the review of Boon et al., human capital has different dimensions, such as social, psychological, and system. Each employee can be approached as a personality, while interconnections between them are defined by the efficiency of the communication and corporate culture in your teams. Lastly, the system level includes the operational efficiency of the whole company, so each workflow is connected with the overall value production, contributing to it. According to Delery & Roumpi, include not only employee motivation and organization but are deeply connected with all company resource management.
Using technology
Choosing an appropriate HCM app and platform it’s a kind of art. You should understand and feel which one will be the best, based on your company’s focuses or needs. We’ll review a few types later.
Engaging employees
Motivation is everything. The inner flame that drives you to pursue goals and realize yourself can be controlled and directed using interactive features, gamification, and a reward system.
Fostering a culture
People are social beings, and they tend to unite and cooperate, so it’s best to organize cultural elements in the company that contribute to high work quality and communication ethics and define your company’s style.
Positioning of corporate goals
Along with motivation, culture, and automation, clear goals are the core of the well-working system. People are motivated when they see why they work and what they can potentially achieve, so good HCM strategies always contain clear goals.
Organizing flexible work
Today it especially matters to ensure that employees are interconnected, no matter where they are physically, and that they can work when they want. It’s very convenient for them and efficient for the company.
Talent cultivation
includes education courses, skill practice, and regular performance report evaluation. It enables managers to see what can be improved and how, and apply appropriate mentorship to improve talent performance.

What is HCM software?

A good strategy includes a lot of things to optimize and automate. That’s where we need software.

HCM solutions include any tool that can automatize and facilitate all processes mentioned before. As our article on HR systems shows, there is a variety of management tools that can be good in different contexts. So, we’ll start by exploring their types, and then focus on crucial features. Lastly, we’ll overview several specific examples of such platforms from different types, showing shortly what each of them is best for.

Human capital management platforms overview

While we have a nearly complete exploration of various HR tools in the article linked above, here we have a short summary list of
HR management tools
are usually large-scale platforms used to onboard and organize employees: they contain employee databases, help with paperwork greatly, and usually provide communication and tracking features, too. Use them if you need to organize a large employee flow, and a good example is BambooHR.
Talent management systems (TMSs)
focuses on talent acquisition, tracking their work, helping them with career advancement, and showing the space for improvement. They are best for quickly developing companies to organize their talents. A good example is ClearCompany.
Learning management systems (LMSs)
provide a robust learning environment, with course constructors, digital classrooms, knowledge base, and motivation tools. They should be considered if you need to upskill employees regularly. Our CleverLMS is a good example, while other ones include Absorb LMS and Valamis.
Project management tools
are dedicated to manage tasks and projects. They provide robust features to set deadlines, adjust notifications, organize projects, and communicate with colleagues, so they are must-have for project-based work. Asana, Slack, and Notion are popular and efficient examples.

Human capital management tools overview

Now, let’s see which specific instruments are used in a typical platform. Not all of them will always be present, but usually, they are among the necessary ones. Use this list as a reference point to elucidate your own objectives.
Hiring & onboarding
include the tools to help create a job description, place it in a website, and then meet an employee with introductory courses and/or mentorship.
Performance analytics
include work tracking and report creation with statistical insights.
Motivation tools
include gamification, interactive elements, and score systems.
Communication tools

include messaging chats, video calls, and discussion forums.
Document management
such as payrolls, can be easily automated with a good HCM tool.
Work process management
is crucial for any human capital management application: it enables managers to connect people and workflows, ensuring the flawless operation of the corporate system.

Top human capital management software

In the world of HCM systems, it’s important to select the proper type that will work well in your situation. So let’s quickly, in 1–2 sentences, overview each of these software products to see what they are best for.
is a universal platform with high customization options, project management, and motivation features, such as a tailored corporate gift store for the best learners.
Absorb LMS
has more advanced features, such as in-built generative AI, so it may be more suited for hi-tech startups.
is a learning experience platform (LXP): a modern human capital management software using AI to search for learning information based on personal preferences.
has robust features to search, onboard, and manage employees and their data; it also helps with payrolls and other legal documents.
is more inclined toward talent management: its features include work tracking and employee strategy planning tools.
is dedicated to project management wholly. With its quite minimalistic interface, it enables creating tasks, setting deadlines, grouping them into categories, and discussing them.
is based on project management, too, but it’s more feature-rich and content-centered, enabling you to create information pages, databases, communication forums, and organize them in many ways.
is a communication-based human capital management system with vast options to organize channels, connect various other tools, and create tasks using its Canvas features.
This is only the tip of the iceberg: several representatives of each type that you can try to optimize your work. Don’t forget to ask yourself why you need these tools, which objectives they need to fulfill, and which are your company’s inclinations, i.e. knowledge-intensive industry, sales, manufacturing, communication, or else. By answering these, you’ll clarify your workflows, that can be easily streamlined after that.

Good luck, and remember, everything begins and ends with people!


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