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You’ve probably heard someone in a leadership position say, “Our employees are our greatest and critical asset,” at one time or another.
While most of us would agree, what does it actually mean when we refer to business people as ‘assets’? Does this mean they have economic value like buildings, inventory, or equipment?
Renovations to a building will generally increase the building’s value, and inventory that sits on a shelf for months will generally decrease in value. But how do you impact the value of an intangible asset like an employee?
The practice of human capital management, or ‘HCM’ for short, has become increasingly prevalent in the last few decades for a couple of reasons.
One is that people recognize that an organization’s accurate workforce insights are its greatest assets.
The second, however, is that for many companies, the cost of their workforce is often their greatest expense.
As a result, HCM has become the driving force behind many new business practices, a growing abundance of human capital management software solutions, and an emphasis on the concept of human capital as a competitive advantage.
This article highlights the essentials of human capital management and why it matters for your business strategy – so, dive in!
First of all, it is essential to understand what HCM is and the scope of its focus. HCM comprises a comprehensive set of tools and practices employed in recruiting, managing, and developing employees – full-time and contingent.
As mentioned earlier, HCM practices highlight that employees are huge organizational assets and require the needed investment for better management and maximization of their business value.
Unlike what you'll find with typical HR key functions, HCM goes beyond the primarily administrative and traditional HR functionality.
It addresses more strategic and data-driven decisions and disciplines like real-time employee engagement, decision-making, talent review acquisition, retention, absence management, and employee life cycle.
According to Gartner, for example, HCM is a set of practices relating to people resource management and talent infrastructure.
But HCM isn't only about physical employees, as it also covers the category of software organizations use in sourcing, recruiting, managing, and developing their workforces.
Beyond the employee, HCM also focuses on the structures of different teams, groups, or entire departments. Instead of just the individual employee, it is concerned with the whole process.
At the same time, it still highlights the abilities and skills of the individuals that form the modern workforce.
It is not uncommon to hear people often use the term human resource management (HRM) during any discussion regarding HCM.
While you will find many similarities between HRM and HCM, the two are not necessarily the same.
HRM focuses more on the core administrative function, duties, or daily tasks that make it easy for people, workers, or employees to do their daily business.
For example, HRM covers tasks like storing employee data, tracking their work time, etc.
HCM, on the other hand, focuses on every other thing that helps maximize the value of the employees.
Think of it this way – HCM is the design of the human resources building, resting on the foundation of HRM. HRM helps keep the entire structure together.
But HCM allows that structure to shine or make it even more appealing. You may not see the efforts of the HRM from afar, but you will see the impact of a good HCM.
Essentially, human capital focuses on the value or impact an employee receives from human resources. In other words, how a business's human resources impacts the company's bottom line.
Any definition of human capital should cover the skills, experience, qualifications, and comprehensive insights possessed by an individual or group of individuals viewed in terms of their general value to a given organization.
When it comes to the value of an employee and how it affects a business's bottom line, the main idea here is to quantify and develop each impact over some time.
The reason is that not every employee will have a direct impact on a business. For example, it is pretty clear to see how a salesperson can have a direct impact, but what about a secretary?
The definition of human capital makes it look like employees are nothing more than assets for an organization or business, but that's not the case.
Instead, it looks at human capital in terms of its inherent value. These include:
Although each element is essential, it is best to take all of them as human capital. Moreover, no two individuals or workers are the same, as each person has a unique dimension to their personality.
And this extends to how much impact a person can have on processes in line with your business goals.
To achieve optimal human capital practices, these are some questions you should start asking yourself:
To answer these questions, do not just analyze your employees. Consider teams, departments, and the entire workforce to achieve an all-encompassing response and analysis.
In his book, “Human Capital Management: Leveraging Your Workforce for a Competitive Advantage,”author, Mark Salsbury, writes, “human capital initiatives (HCIs) are large-scale career goals or objectives an organization chooses to pursue that are heavily dependent and reliant on the people of the organization.”
Salsbury also points out that HCIs are strategic, not tactical, and goes on to provide several examples, as follows:
While this is a very useful list, many of these are large initiatives that require significant time and resources, and that are applicable only to larger, well-established organizations.
Certainly, most startups and early-stage companies aren’t concerning themselves with global or international human capital initiatives.
For founders, CEOs, and business leaders within these organizations, it’s important to note that HCIs are relative to the size of the business.
Looking back at Salsbury’s definition, he talks about “large-scale goals or objectives.” Depending on what your business looks like, ‘large-scale’ might be an initiative that affects all the employees in your organization.
The following are some examples of HCIs that you might find in a smaller organization:
As you can see, all of these HCIs require the people in the organization to make workforce productivity happen.
It will ultimately contribute in some way to the acquisition, management, and development of the organization’s human capital.
When done right, HCM benefits administration as it can guide you as a business owner or employer to appreciate, develop, and optimize the workforce.
While you should be able to see a general result on your entire crew, the main focus is to increase the footprint of each employee to help boost the payroll performance of your business.
To break this down even further, here are some reasons why you need an HCM system as a business owner or employer:
That said, every employer should aim at helping their employees become better at their work – and this is where a human capital management system comes in.
Another way to think about HCM is a system that creates the enabling environment for your employees to succeed at what they do. But how do you develop human capital? Here are some steps you can follow:
Your ability to measure how successful your human capital management system is, is crucial. You need to focus on the tangible value of your employee in addition to the extra value created by your human resources.
You can use the following prerequisites to help you achieve this:
Additionally, for any human capital management system to be truly successful, it needs to come with the ability to put needed procedures in place and carry out specific activities.
That means you need to collect data, analyze it, and develop the necessary implementation activities based on the results of your findings.
As mentioned earlier, one of the essential goals of having a human capital management system in place is to give your establishment or business a significant competitive advantage and strengthen corporate performance.
To achieve this, you need to put measures in place to reduce costs over a long-term value and period while improving your quality of service, product, and processes.
You cannot allow your human capital strategies and management system to take care of itself. From the moment you put your systems in place, you need to take the utmost care to ensure that it meets the target you set for them.
The best way to achieve this and ensure success is to implement your system in four unique phases in the following order:
The first phase should be for evaluation. Here, you need to document and analyze every available talent or skill you can tap from your workforce.
You need to take the time to do this as comprehensively as possible so that you don't end up missing vital details that can cause you to miss an opportunity to improve.
The second step is your consolidation phase. After the first phase, you should have a broad idea of the range of skills or talent available to you. This can be achieved by implementing efficient talent review management skills.
The consolidation phase should make it possible for you to work with what is at your disposal.
But that's not all, as you also want to ensure that every individual talent or skill set available is used in the right way to help the organization or business.
In some cases, you might even have to embark on some important professional development, capacity building, and staff changes.
Up next is the communication stage. You need to ensure that you keep your employee informed by communicating your planned initiatives to them.
The best way to do this is by having an in-house meeting and speaking with them in person, instead of opting for other means of communication.
By doing this, you can promote and ensure transparency concerning any workforce planning, labor scheduling, or budgeting plans you may have for the future of your organization and workforce.
The communication phase will also help ensure that you don't take your workforce by surprise or shock them when you implement any sudden changes.
This is also important when conducting performance reviews. That is why it is essential to be clear right from the get-go.
Your final step is the implementation phase. With the previous three phases already mentioned, you should be able to gather almost every deep insight you need.
That should make it possible to assign some of your workers to new sectors or give them new responsibilities, giving them the chance and motivation to make use of their talents.
However, it would be best to ensure that you maintain the highest standards possible by carrying on with all the needed professional development, giving and receiving important feedback, and always keeping an eye on the state of affairs.
It is also worth knowing that anytime you make significant changes in your company for success, you also need to manage the professional changes that may come with it.
The reason is that – for any implementation to be successful – you need to have all your employees on the same page and promote participation.
An essential 'ingredient' to any HCM system has to have the right human capital strategies and management software.
HCM technology or software can help to accelerate HR processes with employee self-service, bringing the processes you have in store to life, streamlining HR operations, and ensuring that they work long-term.
This software is a technology application that can help a small business owner or employer look after and manage the most important and core business asset of their organization – their employee.
The software is designed to ease maintenance and any business process while boosting employee experience.
An HCM software can work across different human resources departments, automating workflows to replace manual tasks and HR processes and helping senior executives, HR professionals, or HR leaders manage the organization.
It can also help you integrate HR processes with ERP, CRM, and other business processes.
How are you focusing on and prioritizing the development of the people in your organization?
What people, management processes, and practices do you already have in place that will help get you on your way to building a human capital management system? Which ones are you missing and working on next?
Does your organization have a vision (purpose) and set of objectives that guide your approach to your people – your human capital?
Human capital management matters for almost any business, especially considering how complex the subject can be. Suppose you are a business owner or employer.
In that case, the last thing you want to do is underestimate how valuable a tool like this can be for your organization or business goals.
You can take advantage of HCM software to handle the management portion of human resources in the long run and give it the streamlining it needs while bringing out the best from your team.