What Is an HCM and How Do You Know If You Need One?

Employees are, in a real sense, the only way any company can actually make money. They’re the most valuable asset management has at their disposal. So just as executives see fit to invest in physical and digital infrastructure for day-to-day operations, maintaining the human infrastructure is just as critical for positive cash flow.

Human capital management (HCM) can help do just that. So let’s explore what it is and how it works.

What is human capital management (HCM)?

As mentioned, HCM stands for “human capital management,” and it’s basically a philosophy, a game plan and a strategy rolled into one. It unifies HR, talent management, workforce management and everything else that keeps people working at the company — and it operates with the idea that every task directly affects the bottom line of the organization.

HCM is also a particular software solution, like CRM. HCM software helps you put this ideology into practice, giving you tools to better manage each area as you set and meet goals.

How does human capital management work?

Think of HCM as managing employment lifecycles.

HCM can very easily be compared to sales funnels, sales cycles or customer journeys. Sales and marketing teams seek to identify the right customer personas, find ways to attract buyers that fit those profiles, give them compelling reasons to commit, then attempt to solidify brand loyalty and increase networking through positive experiences. In the simplest sense, their collective goal is to turn strangers into customers that support and share the brand.

This is the idea behind HCM, just with internal teams. HR professionals identify skill gaps in the organization, work to acquire the necessary talent, help manage and support the existing workforce and assist current team members and leadership.

What are the elements of human capital management?

According to IBM, “Human capital management focuses on adding value to an organization’s employees so they can deliver the best results [and provide] a process for optimizing the performance and efficiency of a company’s staff, delivering an overall strategy to guide talent attraction, recruitment, onboarding and training, benefits administration and reporting.”

They go on to list seven distinct areas of functionality covered by successful HCM practices (and, by extension, HCM software solutions):

1. Talent management.
2. Recruitment and hiring.
3. Onboarding and training.
4. Benefits administration.
5. Time, attendance and payroll.
6. Employee self-service.
7. Reporting and analytics.

In essence, the purpose of HCM is to bring a more intentional and strategic approach to how companies work with their internal staff, ideally leading to happier employees, increased productivity and improved profit and loss (P&L) statements.

Benefits of human capital management (HCM)

When properly implemented, HCM helps teams:

• Put the right people in the right positions.
• Attract capable talent and streamline onboarding.
• Increase employee satisfaction.
• Reduce turnover.
• Minimize HR-related overhead.
• Address issues related to workplace culture, discrimination and more.

Again, these are obviously goals and objectives for any professional or team that’s involved in such processes, with or without HCM. The differences here, primarily, are how HCM brings everything under one umbrella and makes explicit connections between them — and to overall company performance.

Human capital management (HCM) challenges

Unfortunately, the challenges that HCM faces are the same ones it’s designed to address. How do you attract and keep talent? How do you earn employees’ loyalty?

Recruitment and attrition

The issue of finding employees and keeping them is as central to the conversation as ever. In fact, in a post-pandemic, “Great Resignation” employment market, it’s harder (and more critical) than ever to find the right staff and give them reasons to stick around.

Demographic disparities

Many of the difficulties in recruitment and attrition are tied to this one. The labor force is more diverse than ever before, by age, by race, by background and a whole lot more. From technical skills to DEI concerns, there are plenty of things to balance to keep employees comfortable enough to do their best work.

Training concerns

Of course, differences among the employees will also exacerbate any complications tied to training them. Skill gaps, adopting new software or processes, ongoing education and training — it all requires intuitive and valuable training for efficient and easy learning.

Workplace toxicity

People put a lot of time and effort into their jobs, and they need to feel safe and respected to perform well. We also know more as a society about varying human needs and how to accommodate them. Keeping employees on the roster now requires demonstrating some basic human decency and understanding of new developments in health and mental diversity.

Decentralized workforces

Remote work isn’t “new” per se, but it’s never occurred at this volume before. Some whole companies now operate without any central office, and it’s not uncommon for decent-sized organizations to have team members logging in from a dozen different countries or time zones. Just running payroll can be a difficulty, but it’s important to make sure everyone in the company is supported and paid properly.

Do I need human capital management (HCM)?

Ask yourself the following questions:

• Are you struggling to find reliable, capable employees?
• Does your organization see higher turnover rates than others in your industry?
• Would you like to reduce the overhead you’re incurring with your existing HR practices?
• Has it been longer than you can remember since the HR pros on your team could take a vacation?
• Are you getting a lot of complaints from employees (or worse, negative company reviews on Glassdoor, etc.)?
• Do you want to make it easier to generate revenue across the board?

If any of those questions prompts a “yes,” then you stand to benefit from HCM practices.

How to get started with HCM

1. Audit your current setup

Examine your current processes, benefits, trainings and policies. Identify any gaps you see or opportunities for adjustment. Are there less valuable areas you can trim down and free up cash for other improvements?

This is also a great time to gather employee input, using anonymous feedback submissions, surveys or town hall discussions. You might ask your managers to speak to their direct reports privately and pass helpful feedback to HR or a senior manager. Then you can use that information to see how you can create an optimal workplace for current and future employees.

2. Create a plan

With whatever information you’ve collected, create a plan. What are your priorities? How much room do you have in your budget? How much bandwidth does HR have to roll out changes?

Discuss with your HR team or important stakeholders what you can manage and how you can tackle it effectively. You might create a schedule for various rollouts, or you may prefer to make large changes all at once.

3. Make changes

Put your plan into action. As changes are made, you may need to make more adjustments and tweak existing plans to ensure everything goes as smoothly as possible. Be prepared for hiccups and use them to further improve new processes.

Messaging is also important to keep employees informed and comfortable. Be transparent about what’s happening and welcome feedback as you all go through changes together.

4. Be patient

Approach this the way you would any other major rollout.

Changing policy, practices or processes always comes with obstacles and hurdles. There will be rough sailing ahead, especially when changes affect people and their workflows. Stay the course despite the troubled waters. Persistence is your friend: Continue your efforts to keep the new system in place with good intentions, and as time goes on, consistency and accuracy will improve.

How to choose a human capital management system solution

You’ll want to start by establishing a baseline of your organization’s specific needs and use case particulars. We have a checklist to help you get started, but keep in mind, there may be items unique to your business.

Using that baseline, review top HCM software to see which best fit your needs. Shorten that list as much as you can with careful evaluation, and review expert reviews as well as customer reviews to get a better sense of the benefits and drawbacks of each. And if you’re able, attend any demos or sign up for free trials of the software to get a better feel for it and how it might work for your particular business.

With enough research and consideration, you should find a solution well suited to your needs.

If you want top-level power in employee management, hiring and onboarding, our favorite HCM software is Rippling. It has customizable reports and workflows, automated payroll and tax compliance, and attentive customer service.