What is human capital management (HCM)? Why it matters

Human capital management (HCM) is more than just a process, as it includes everything you need for employee management. HCM focuses on strategies that help organizations attract, develop, and retain top employees. It can mean the difference between a thriving company and one struggling to keep its doors open. 

HCM empowers businesses to achieve their strategic goals and drive innovation. With a strong HCM strategy, you can boost productivity and employee engagement, plus make your business profitable. 

Let’s explore how human capital management works, why it’s important, and the key practices for success. 

How human capital management works

Key components of human capital management

Benefits of a human capital management system

Why human capital management matters

Do you need HCM Solutions?

Misconceptions about the HCM industry

Navigate midsize business challenges and opportunities

Human capital management FAQ

How human capital management works

While traditional HR focuses mainly on administrative tasks like payroll, compliance, and handling employee relations, HCM takes a broader and more strategic approach. It aligns HR functions with your company’s business strategy to ensure that the employees are working toward your business’s goals.

Key components of human capital management

Let’s break down each of the HCM practices and see how they work together to create a strategy that helps you manage your workforce and optimize its potential. These practices are vital when creating an engaged, motivated, and productive workforce: 

Strategic recruitment

Building a strong team starts with recruitment. HCM combines advanced tools and techniques to attract, assess, and hire the best talent. This includes application tracking software, employee skills and personality assessments, and data-driven recruitment strategies. 

With these tools, companies can find candidates with the right skills and experience for the job while sharing the company’s culture and values. 

A good recruitment strategy brings in people who are a great match for your company and can help drive its success. HCM systems simplify this process by making it easier to manage job postings, track candidate progress, and determine who to hire. 

Performance management

Performance management involves setting clear goals, tracking progress, providing feedback, and evaluating employee performance. By using HCM systems, organizations can create an ongoing performance management process that keeps employees aligned with company objectives and encourages ongoing growth. 

Performance management helps employees understand what’s expected of them and how their work contributes to your organization’s overall success. It also provides feedback, rewards, and recognition opportunities, which drive engagement and motivation. 

Learning and development

Investing in employees' learning and development is vital for growing your business. HCM covers training programs, coaching and mentoring, and career development initiatives that help employees learn new skills and advance their careers. 

HCM systems often include tools for creating, delivering, and tracking training programs, which help improve employees’ skills and retain top talent. 

Compensation and benefits

If you want to stay competitive in attracting and retaining top talent, you have to know what to offer. HCM includes designing competitive salary structures, bonus programs, and benefits packages that meet employees' needs and align with industry standards. A well-thought-out compensation package can boost employee satisfaction and reduce turnover. 

HCM systems make managing compensation and benefits easier by providing tools for salary benchmarking, benefits administration, and payroll integration. These tools help ensure your employees are consistently and fairly paid.

Employee relations

A positive work environment is one where employees feel valued, respected, and supported. HCM strategies for employee relations include conflict resolution, grievance handling, and fostering open communication between management and employees. These efforts lead to a better workplace culture and improved employee satisfaction. 

Using HCM solutions simplifies employee tracking. Organizations can manage employee relations issues, manage grievances, and implement programs that promote a positive work environment. By being proactive, organizations can reduce and prevent conflicts and boost employee morale. 

HR compliance

Organizations need to follow labor laws, regulations, and industry standards. Failure to comply can result in legal penalties, financial losses, and damage to your company’s reputation. HCM systems help keep organizations compliant by automating compliance tracking, reporting, and documentation. 

Labor laws and regulations are always changing, so organizations need an adaptable HCM system that keeps up with these changes. This reduces the risk of non-compliance and allows business human resources professionals to focus on other aspects of their role. 

If you’re struggling with HR tasks, tools like QuickBooks Payroll can help. Get expert HR support to stay compliant, manage your team, and streamline workflows.

Benefits of a human capital management system

A human capital management system offers several benefits that can impact an organization’s success. Here are a few:

Attracting and keeping top talent: An HCM system can streamline employee onboarding, recruitment, and employee development. By automating these processes, you can attract top candidates and ensure that new hires have a smooth start. An HCM system also supports ongoing employee development, which makes your organization more appealing to current and potential employees. 

In a recent survey, 40% of HR leaders stated that their biggest concern is talent retention. Imagine losing your best employees to competitors simply because your businesses didn’t have the right strategies to keep them. HCM is designed to prevent that from happening. 

Responding and adapting to change: The world moves fast, and you’ve got to keep up! HCM systems can provide real-time data and analytics, helping organizations make better decisions faster. Whether you’re responding to shifts in the market, changes in labor laws, or challenges within your organization, an HCM system gives you the tools you need to keep up. 

Optimizing workforce management: HCM software automates routine tasks, cuts down on administrative work, and frees time for human resources and payroll to focus on other strategic initiatives. Optimizing workforce management helps organizations become more efficient, reduce costs, and boost productivity. Features like time and attendance tracking, workforce scheduling, and employee self-service improve workforce management.

Why human capital management matters

Human capital management is vital to your organization’s success. It helps you achieve goals, engage employees, and stay highly productive. 

Here are a few reasons HCM is important:

• Helps achieve business goals: HCM aligns your workforce with your organization’s goals, ensuring employees work toward the same objectives.
• Increases employee engagement: When employees are engaged, they’re more productive, innovative, and more likely to remain with the organization. HCM strategies focus on enhancing employee engagement through development, recognition, and communication. 
• Improve productivity: HCM optimizes workforce management and helps employees be efficient and effective. As a result, organizations experience higher productivity and better business outcomes. The cost of replacing an employee can be as much as 50% of the employee’s salary.

Do you need HCM Solutions?

Every organization is different and thus has different needs. Whether or not your organization needs an HCM system depends on several factors. Here are a few signs to look out for:

• Manual Processes and Spreadsheets: Do your HR processes rely heavily on spreadsheets and manual input? An HCM system can automate these tasks, improving efficiency. 
• Difficulty Managing Employee Data: Managing employee records becomes increasingly challenging as your organization grows. An HCM system can centralize employee data, making it easier to manage and access. 
• Limited Insights and Analytics: Your traditional HR software may need more information to make critical decisions. An HCM system offers real-time data and reporting capabilities so you can make better decisions.

Misconceptions about the HCM industry

There are several misconceptions about HCM solutions that can keep businesses from adopting them. Here’s what you should know: 

• HCM solutions are just for large enterprises. HCM systems are scalable and can also be tailored to meet the needs of small and mid-sized businesses.
• HCM industry tools are too complex to implement. While implementing an HCM system can be complex, many providers offer support and resources to smooth the transition. Often, the long-term benefits outweigh these initial challenges. 
• Systems cost too much. Although the upfront costs of an HCM system may seem high, the ROI from increased productivity, cost savings, and improved compliance makes it a worthwhile investment. 
• HCM solutions don’t address skills gaps: Workforces are always evolving, meaning skill gaps can emerge. HCM solutions evolve with them by providing updated training and development opportunities to close these gaps. 
• HCM solutions can’t help your multi-generational workforce: Gen Zers, millennials, Gen Xers, and boomers sometimes work in the same space. HCM strategies adapt to address each generation's unique needs and preferences. 
• HCM systems fall short when maintaining compliance: HCM systems help you keep your organization in compliance with constantly evolving labor laws and regulations. 
• HCM systems can stifle human interaction: HCM systems are designed to enhance human interaction by automating routine tasks and giving HR professionals more time to focus on other tasks, like building employee relationships.

Navigate midsize business challenges and opportunities

As a midsized business, you face unique challenges and opportunities. Human capital management solutions help you navigate them by providing the tools you need to manage your workforce effectively. Whether adapting to growth, managing a diverse workforce, conducting payroll audits, or keeping up with regulations, a payroll system like QuickBooks Payroll.

If your business is more complex, an all-in-one enterprise resource planning system like Intuit Enterprise Suite can help you manage your finances with precision and ease. Growi with a more powerful suite, and boost productivity with business and financial management all in one solution. 

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