What Is Human Capital Management. Definition & benefits of HCM

Page Updated on April 7, 2023

Human Capital Management is the practice of managing the human capital (the people) within an organization, for the benefit both of the company and the employees. The management includes providing the right training and skills for employees, providing employee care and an ethical workplace, hiring the right staff, and helping staff to feel valued; whilst also helping the company to flourish.
Dr Valeria Lo Iacono

There are several strategies you can use in human capital management as a company so let’s take a look at what practices and tools you can use to improve the well-being, job satisfaction, and productivity of your workforce.

What is Human Capital?

The term ‘human capital’ really encapsulates what the two individual words represent regards ‘human’ and ‘capital’

The humans in this case, when referring to HCM (Human Capital Management) refers to employees, be it managers, supervisors, or lower-level employees.

‘Capital’ in this case refers to the value of these employees. So human capital is the human value of an organization.

Benefits of Human Capital Management

Human Capital Management is thus about the strategies and techniques for benefitting the company such as by making it more productive and profitable and doing so by having the right staff, training them well, and providing them with a positive work environment in which to operate.

The benefits of Human Capital Management include the following:

1. A Happy Workforce and Resulting Low Staff Turnover

Staff who feel valued, who have fun and who have an exciting place to work from, who feel fairly rewarded and compensated for their work, and who overall are happy, means staff who are likely to stay in their role or at least with your company.

To have staff who feel happy, you need to include consideration for emotional intelligence and equality in the workplace. We will discuss this further below.

2. Reduced Overheads and Costs

As well as being about the employees and trying to create the work environment for their benefit, it is also very much about providing benefits directly for the company or business in hand.

Happy staff can mean a substantial reduction in staff turnover and the direct result of this is that you can save a significant amount of money on staff hiring, training, and retention.

3. Better Productivity

Through good employee management, you can also often increase productivity for the business, by making good use of employees, i.e. by properly utilizing their skills and abilities.

Improving productivity is a key goal from a business point of view, and a reason why many companies look to HCM, in order to find ways to improve results.

4. A Better Company for All

Collectively the better working environment, better productivity, and profitability, happier, healthier, and better-managed staff, means generally a much better company for the owners, managers, and all employees.

I think you will agree, human capital management certainly is something to be taken seriously and is worth the time investment given the benefits we have just looked at.

Key Components and Principles

When looking at a business as a whole, it can be quite overwhelming to try and work out how to implement a good HCM (Human Capital Management) plan.

To make the whole process much easier when planning for HCM, it is much better to break it down into key areas and these areas are as follows:

1. Recruitment and Onboarding

Recruiting

It might perhaps seem an obvious thing to say that it is essential to hire the right people for the right role and you would be right.

It is surprising though just how often, in the hiring process, the best person for the job does not get hired for the role on offer.

Common issues in the hiring process can include:

a shortage of time for managers and hence corners being cut in the hiring process
not enough budget used to find and hire the right employee (causing a bigger cost in the longer term when staff leave and need to be re-replaced)
biases and favoritism such as a manager hiring someone s/he knows, rather than someone who might have been better being hired. Cultural bias can also be an example of why the best person for the job might not be the one to get the job.

Solutions: A proper and well-organized plan should exist for hiring new employees. As a part of this, those doing the hiring should also be trained in topics such as unconscious bias to learn techniques for making fairer decisions.

Onboarding

Onboarding (induction training) is extremely important in this discussion on HCM because, as you might have read on our onboarding page:

We found a 45% higher staff retention rate of new hires, where a good onboarding strategy is a key part of the welcoming process for new hires during the first 90 days.
Dr Paul Symonds writing about Onboarding

As you can see, by putting in place a solid training and new employee integration plan (including allocating new staff a mentor, for example), it becomes possible to greatly reduce the number of employees quitting within the first 90 days.

In terms of human capital management, the process starts here even before the employee is hired with the right hiring strategy and the right induction plan in place.

Solutions: It starts before the human capital (new employee) has even started working for your company through a solid hiring strategy that is well thought out. And secondly, the employee must be well-trained and well-integrated into her/his team and into the company effectively from the start.

2. Job and Compliance Training

In addition to the correct training for newly hired staff, work training and compliance training are an essential part of HCM.

The loss in productivity through failing to keep employee skills relevant to their role, and up-to-date, can be costly.

Job satisfaction, through learning new skills and developing as an individual in the workplace, is also a key aspect and benefit of workplace training.

You might get bored of me saying it but a happy employee is a more productive one and tends to be a better team player and is likely to stay longer.

Solutions: Ensure you have a strategy in place for monitoring each person’s job role and assess what training they need (if any). You might want to ensure that each employee is also given an opportunity to discuss training during a regular appraisal (be it twice a year or annually).

3. Employee Welfare

The employee retention rates for companies that value and make a definite effort to consider the welfare and well-being of their staff are known (from various studies) to be higher.

Employees are the greatest asset any company has and it is vital to consider properly managing the following:

Employee well-being and mental health
Inclusive Leadership and how to make the workplace suitable for all dis/abilities, cultures and a fair and good place to work
Emotional intelligence and having a workplace where everyone feels able to have a voice
Employee Confidence and helping staff to thrive

Ensuring that managers understand how best to manage staff absence and also to have a workplace where factors such as Menopause awareness is understood, can be valuable.

Solution: Consider the training examples above (and also these employee and management training ideas).

4. Employee Rewards, Benefits, and Opportunities

Ultimately, if staff do not feel fairly rewarded and valued for the work they do, they will very often leave and look for a better opportunity elsewhere.

Holding onto the valuable capital (people) that you have in a company is a challenge for any company. Long gone are the days when we worked for one company for a lifetime.

Pay and financial incentives remain the single most important factor for employees and getting this right for this reason, is an important factor in HCM.

Solution: Continually monitor and make sure you understand (as a human resources person/department) the various roles and fair remuneration. Also look for other ways to reward staff.

5. Leadership and Management

Leadership and management is another absolutely vital factor in HCM and it is not hard to see why.

Employee satisfaction or dissatisfaction often stems from decisions made at the management level, these decisions filtering down through the workplace and having a significant impact on the workplace culture as a whole.

The problem can be that many managers progress through a company and are not given the right managerial training. This is extremely common and one of the biggest issues.

On the other hand, many managers who get hired externally, are not trained or given the opportunity to fully understand the workplace culture into which they are coming and this also can create conflict.

Solution: By having a clear company culture and roadmap, it will be easier to ensure that managers are trained to match what is needed.

6. Succession Planning

The idea with succession planning is to plan for the future managers and leaders within a company.

In terms of human capital management, it is, in other words, about ensuring that:

The roles that really need leadership roles are identified and created
A person is trained up and ready to be effective in their future leadership role (including on topics such as how to deal with difficult people)
There is also a proper system in place for identifying future leaders
There is a system in place to ensure that talented individuals of this kind stay with the company (including through good working conditions and remuneration)
The effectiveness and efficiency of these roles are evaluated and tweaked as needed

Human resource software can be extremely useful for managing all of these factors (more on software in the next point).

Solution: Ensure that you have a succession plan in place.

7. HCM Software

Software can play a vital role in HCM in order to:

Correctly manage employee data
Manage productivity and planning

A lot of data will exist on all employees, particularly in the human resources departments, and this needs to be managed correctly.

Likewise, software can be extremely useful for monitoring performance, strategic planning, and also for employee hiring planning.

Equality and diversity training — >> **View the Equality & Diversity materials**

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Dr Valeria (Lo Iacono) Symonds

Involved with education for over 25 years, Valeria has taught at the University of Bath and Cardiff Metropolitan University (both UK) & Hankuk University (Korea). With a PhD, she has also worked as a researcher (Exeter University) & has many years of industry experience including with Cardiff University in management roles. She is the founder of Symonds Training.