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Human Capital Management explained: what it is and does


This guide outlines what human capital management is, what its goals are, and what it can do for your business.

Human capital management focuses on the effective and efficient use of an organization’s human resources. Practical human capital management and enterprise resource planning (HCM and ERP) efforts increase profitability, reduce operational risk, facilitate performance improvement and employee engagement, and improve a company’s competitiveness. 

Human Capital Management (HCM) overview

Human capital management is the process of managing labor resources from hiring, training, and motivating employees, developing new hires’ plans, and evaluating their performance’s effectiveness. It aims to improve human capital quality, quantity, cost-effectiveness, and distribution. 

HCM also concerns the workforce’s physical, intellectual, and emotional components. It deals with those aspects of an employee or contractor that are immeasurable by financial or business metrics alone. 

HCM and ERP solutions aim to optimize organizational efficiency by engaging talent and maintaining a healthy work-life balance to manage employees effectively. They help organizations analyze their employees’ skill sets to maximize productivity.

What’s the Goal of HCM

HCM helps companies maximize their workforce potential by focusing on improved retention, employee career growth, and motivation. Here are some of the goals of HCM.

Hiring the Right Talent

Organizations need to locate the right talent in a cost-effective and timely manner. Companies align the talent acquisition process with the company’s core business strategy, thereby increasing the likelihood of hiring suitable candidates.

HR departments can use human capital management tools to identify suitable candidates for open positions, set job-specific requirements early on, and screen applicants based on their skill sets and the results of previous interviews.

Hiring the right talent helps companies retain high-performing employees, leading to organizational success. 

Managing Employees Effectively

HCM ensures that employees’ needs, goals, and values align with the organization. It also helps companies manage their employees by evaluating their performance in terms of competencies and productivity. HCM programs motivate employees to perform at their best levels and help them advance their careers within the organization.

By effectively managing employee performance, organizations can retain the talent they want and improve the productivity of lower-performing employees. This process avoids unnecessary cost increases from recruitment activities due to low staff morale or high turnover.

Increasing Productivity

HCM programs help companies increase productivity to meet organizational goals through employee training programs. They encourage creativity and innovation by creating an environment where employees can think independently and make decisions that align with company goals.

What does Human Capital Management entail?

Human capital management includes all practices related to managing human resources, such as:

Recruiting and Hiring

The recruitment process involves the development of an organization’s talent pipeline and procedures to identify, select, hire, and retain candidates. The hiring practices involve applying hiring skills to the selection and onboarding processes. It includes providing orientation to new hires so they can have a positive experience with their new company.

Recruiting helps the organization identify and evaluate the best candidates for the job. It includes identifying the need for new hires, reviewing resumes, and selecting applicants for employment interviews. Hiring involves employees’ benefits and responsibilities to begin working according to their duties and employee prospects.

HCM programs help companies identify their skill gaps and develop new hiring practices that align with these needs. They also provide employees with the introductory training and coaching they need to perform their jobs successfully. 


Onboarding refers to integrating the new employees you hire into your organization. A successful onboarding process helps new hires adapt to the organization’s culture and quickly become productive workforce members. It also provides employees with leadership training that improves their overall performance and contributes to their professional development.

HCM programs provide new hires with orientation manuals that prepare them for their functions and responsibilities. New employees undergo several orientation days, allowing them to adjust to their new jobs and become productive team members. The programs include creating a welcoming, flexible, and motivational culture. 


Training programs help employees develop new skills, knowledge, and competencies. HCM  programs provide employees with the coaching and mentoring they need to perform their jobs effectively. They also help companies get the most out of their existing workforce by providing job-specific skills training.

Good HCM programs create an interactive environment where employees can exchange perspectives and strategically communicate with each other.

Workforce Planning

Workforce planning is a process that helps organizations align the needs of the workforce with their talent management policies to improve quality and productivity.  These processes help organizations assess their current operating strengths and deficiencies against their strategic plans to develop effective human capital management.

Effective workforce planning helps companies predict their talent needs and develop strategies for managing their workforces. Some workforce planning activities include planning for skill gaps, skills development, succession planning, and knowledge management.

Workforce planning is a long-term process that helps organizations hire high-quality workers and attract the right talent. It improves organizational effectiveness, drives business performance and profitability, and contributes to stakeholders’ objectives. 

Compensation Planning and Payroll

Employee compensation is a significant component of overall HCM efforts. Organizations can use technology to manage complex compensation structures. The technology ensures that employees receive rewards and incentives based on the organization’s performance. Compensating employees helps them feel appreciated by their managers and employers.

Businesses should consider individual merit when determining pay levels that maximize their workers’ abilities while encouraging maximum productivity. Companies can automate payroll data input and processing using HCM tools. The data includes job descriptions, compensation structure, payroll system compatibility, and compliance with tax and labor law.

The tools also enable employers to calculate payroll according to individual employees’ work hours, work status, and competencies and provide automated payments. 

Reporting and Analytics

Reporting and analytics help companies track their progress toward achieving their goals and objectives. HCM programs ensure that you have the information to manage the workforce planning process strategically.

Businesses should regularly review their employees’ performance, skills, competencies, and training progress. They should also develop ongoing communication that encourages collaborative thinking among managers and employees in a flexible work environment. Reporting creates visibility for businesses to manage their human capital assets effectively.

Final thoughts 

Human capital management helps businesses maximize the value of their workforce. It also supports business goals such as customer service, productivity, and profitability. HCM and ERP solutions create environments that encourage collaboration and ensure that employees remain productive and loyal. 

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