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.

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.

Well…

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.

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!

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.

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.

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.

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.

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.

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.

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!