Human capital management, also known as HCM, is a strategic approach to operations focused on human resources within an organization. Human capital management puts emphasis on the people who make a business run and on strategies for efficiently working with them so that they, in turn, can help to promote the goals of a business and advance it to the next level. This conscious approach can be beneficial to employees as well as organizational performance.

As a business leader, you will need to find and maintain a great team in order to focus on driving your organization forward. Human capital strategies help leaders achieve this goal and can increase their chances of maintaining a successful business. 

What is human capital management’s main purpose, and why does it matter? Some benefits of using strong human capital strategies include:

• Reducing costs: Using human capital strategies can help lower costs. For example, if you implement succession planning, your business could save valuable time and resources that are often consumed by employee turnover.^{(See disclaimer 1)}
• Making employees feel valued: Certain human capital management strategies may also make your employees feel valued. If you are investing in the development of individuals and creating a welcoming and inclusive environment, employees are likely to feel valued, appreciated and seen.
• Advancing the business: The human capital management process provides an opportunity for advancement, and it allows for planning and growth from ideas into future operations. Thus, these strategies can improve organizational performance.^{(See disclaimer 2)}

A human capital management system has several main components. These components center on maximizing the potential of employees within the organization. Some core pillars to be aware of include:

Talent Management

It is important to hire the right employees if you want to have the best team for your business. Instead of looking for applicants who simply qualify for the position that is available, it is important for human capital managers to look for applicants who will be the best overall fit for their business needs, vision and future.

Workforce Openness

Another advantageous human capital strategy is workforce openness. When organizations maintain a welcoming, integrative environment, they can benefit from the different talents and ideas that each employee brings to the table. This also allows for networking opportunities within an organization and a more positive and supportive environment for employees.

Succession Planning

What happens when leaders move on from a company? Succession planning is one strategy that helps businesses answer this question. Having a strategy for who will replace current leaders once they leave the company is essential for ensuring that businesses continue to run smoothly and effectively.

Employee Development

If you want your future employees to invest in your business, your business will need to invest in them. Employee development refers to the training and support employees receive that helps mold them into ideal employees who can help ensure the successful future of a business.
 

Human capital management overlaps with human resources (HR) management. However, the primary HCM meaning is to develop and implement a strategic vision for the organization that empowers the employees, such as through professional development initiatives. In contrast, HR management is primarily concerned with administrative matters, such as payroll and benefits administration.

Organizations may decide to use human capital management software to manage their employees’ needs. Capabilities vary by digital platform, but the software may merge HR management with HCM, providing an all-in-one platform that enables organizations to both manage payroll and align the employee’s professional growth with the strategic vision for the organization. For example, the platform may provide access to learning and development modules for employees.

Business leaders often face challenges when nurturing business growth and aligning employee development with their strategic vision. These challenges may vary by industry, but may include:

• Rapidly evolving industry: Some industries, particularly those heavily involved with emerging technologies, evolve quickly. Employees may develop new skills only to discover that they become outdated quickly. Some industries must engage in near-continual upskilling and reskilling.
• Departmental silos: Even if the company has an overarching vision and mission, each department may have its own ideas about how best to implement it. This can result in departmental silos, in which certain departments may deviate from the overall plan or fail to share information properly across departments. It’s essential to get everybody on board with the company’s vision.
• Employee retention: Nurturing employee talent is a top priority in human capital management, but it can be challenging when the company has a high employee turnover rate. Companies with high turnover may need to take a closer look at their company culture and compensation packages to identify areas of improvement.

When choosing a human capital management software solution, business leaders should first of all consider the needs of the organization. Is it preferable to maintain separate HR and HCM systems, or is an all-in-one solution preferred? Is the priority on employee access to professional development modules?

Other factors to consider can include:

• Company size: Some software solutions are geared toward major enterprises, while others are ideal for small- to mid-size companies.
• Budget: Consider one-off costs, as well as ongoing subscription fees.
• User experience: Ask your employees for feedback, such as what they think of the platform’s functionality and whether it meets their needs.
• Compliance: Confirm whether the system allows your organization to fulfill its compliance requirements.

The human capital management definition may stay the same fundamentally, but the concept can change and expand over time with varying trends. For example, many organizations have been looking for ways of boosting employee productivity by encouraging human-AI collaboration. When doing so, business managers should be aware that employees may become concerned that the goal is to replace human workers with AI agents and tools. If this isn’t the goal, managers should state so outright to mitigate those concerns and maintain employee morale.

Another technology-dominated trend in human capital management is to create opportunities for employees to work remotely or via a hybrid work arrangement. Allowing this option can provide greater flexibility, which might support employee morale. Remote work opportunities can also benefit employees who are parents, as well as those with disability-related mobility issues.

If you aspire to further your knowledge about human capital management strategies, consider earning a Master of Science in Leadership (MSL) degree or Master of Business Administration (MBA) degree. These degrees are tailored to business-minded individuals who want to learn what it takes to be an effective leader in their field. They also explore what it means to be a servant leader.

The curriculum encourages students to explore their leadership style while studying important topics such as innovation, development and human capital strategies.

Grand Canyon University’s Colangelo College of Business delivers career-focused degree programs that aim to nurture impactful servant leaders in all types of industries. When you’re ready to continue your academic journey, apply for enrollment in the Master of Business Administration with an Emphasis in Strategic Human Resource Management degree or the Master of Science in Leadership program.