The human mind is our fundamental resource. – John F. Kennedy
The distinction between Human Capital Management (HCM) and Human Resource Management (HRM) isn’t always extremely clear in core human resource literature. This also isn’t surprising. While many analysts would argue that the two disciplines are quite different, there are sufficient common elements and interdependencies that contribute to a flattening of the differences and, in some instances, the use of the terms interchangeably. So a short discussion of the differences and similarities may contribute to a better understanding of HCM in its proper context.
Human resources are the people who make up a workforce within an organization. The term can be extended to imply the workforce of a business sector or an entire economy. The word resources implies “an available source that a company can utilize when needed until it is no longer available.” It isn’t limitless.
Human capital, in essence, builds on the concept of human resources and adds the component of value. Capital can grow with investment, producing more capital, and it isn’t a finite resource. Therefore, we can think of human capital as the collective value (and replenishable source) of knowledge, skills, motivation and commitment of the organization’s workforce.
Consequently, HRM is an organizational function that manages the existing personnel activities of a company. Its tasks are more transactional and administrative in nature, and take care of areas such as payroll, employee benefits, compliance issues and reporting.
HCM, conversely, provides an important strategic function for the organization, focusing on professional development, performance measurement and human resource planning for future company growth. HCM is not averse to framing a company’s workforce as one of their most important assets. In the past, a company asset strictly referred to financial capital or a physical asset, but in today’s environment, where talent scarcity is the norm, a talented workforce has become a company’s most valuable asset.
The Rising Significance of HCM
The last decade or so has been witness to very significant changes in the economic and labor landscape, both domestically and internationally. What were some of the forces driving these changes?
Essentially, there was a complex mix of demographic, technological and economic changes which, overall, resulted in an increasingly globalized economic system.
Demographic pressures, like baby boomers leaving the workforce, historically low unemployment figures for college graduates and the decrease in the global birthrate have all contributed to a talent scarcity that’s unprecedented.
Conditions such as these have given a boost to human capital professionals, who are now enjoying far greater influence at the strategic level within organizations. Companies with the best talent are more strongly poised to dominate their markets, putting organizations that must attract this talent at a short-term disadvantage. As a result, companies are investing in human capital strategies, with the expectation of developing and retaining employees, as opposed to having to hire and train new people. But before companies can effectively manage their human capital, they must first consider what strategies they have in place for attracting the top talent, and drawing in professionals with the proper skills. This crucial part of the process requires a strong emphasis on talent management.
HCM and talent management go hand-in-hand, because in order to successfully develop human capital and foster and expand the expertise within the organization, HCM must be able to draw upon candidates with the right skills and aptitudes.
With the high pressures of recruitment, proper talent management can help deliver the most suitable candidates early on in the hiring process. This is not only cost effective, but ensures that training is targeted and productive, by matching employee skills with the strategic goals of the organization. The ongoing attention paid to developing these skills benefits the company, boosts employee satisfaction and improves the company’s reputation overall.
The Role for HCM Software in Reinforcing Business Strategies
As the value of human talent has steadily risen within an organization’s list of strategic priorities, it isn’t surprising that HCM itself has grown as both a discipline and as an industry. Companies have become increasingly aware that their most valuable asset is their human capital, and that the combined skills, training levels and productivity of their workforce can mean the difference between success or failure. In this new reality, companies have more willingly directed additional resources to the development of their workforce for the betterment and success of the company.
Software vendors have responded to this market demand willingly and forcefully, by taking on the challenge of automating as many of these functions and activities as possible. Today, businesses have a wide array of HCM solutions to choose from, and can unite many aspects of HCM management, making the process as streamlined and intuitive as possible. Plus, the option of cloud-based solutions can keep costs in check, enabling a much larger segment of the business community to participate in the benefits.
HCM Features and Functions
HCM solutions offer many focused applications that target and assist in critical areas, such as:
- Talent acquisition and recruitment
- Ongoing human capital development, by offering continual training
- Performance management that supports setting goals and tracking progress
- Continuing to focus on the employee as an individual that can offer true value to the business
When HCM solutions achieve the goals that these applications target, human capital management can function as a strong partner that reinforces the comprehensive goals of the organization.
The management of human talent as an asset, with clear strategies for growth in place, benefits greatly from a system that measures performance on an ongoing basis and supports this effort with complementary training and coaching.
With the goals of HCM software so clearly linked to the promotion of a company’s workforce, many software vendors are offering software packages that merge the needs and activities of all areas of managing the lifecycle of an employee. Increasingly, the wisdom of offering this large set of functionalities into a single solution has, by and large, won the argument. Both HCM and HRM software play a complementary role in the development and promotion of human capital assets. Combining the abilities that strengthen recruiting, retaining and cultivating top talent with typical HRM functions that deal with the operational management of payroll, benefits, recordkeeping, etc. makes the process less fragmented and, consequently, more cohesive and efficient. If the goal of HCM software is to strengthen the workforce, and the goal of HRM software is to support and sustain that effort, then why artificially separate the common means of both to this similar end?
Today, companies are investing heavily in human talent, elevating the function of human capital management. There are many reasons for this phenomenon, including demographic changes, technological advances, globalization and the shrinking of a talented workforce. But the outcome for employees, in many respects, is favorable. The focus on the employee as an individual has been empowering, creating greater opportunity for personal and professional growth. The hope is that the continued merging and blending of HCM with other solutions won’t dilute the voice of the employee, but instead, bring about a strengthening of ties between the goals of the organization and its employees.