What is human capital management

Human capital management (HCM) is a set of practices and tools HR departments use to acquire, manage, and optimize a workforce and drive business value.

What is human capital?

Human capital is an employee’s economic impact on their company and the value they bring to their team. Every employee brings a degree of human capital to their company through their skills, knowledge, experience, or creativity.

What is the purpose of human capital management?

Human capital management is built on the idea that employees are a company’s most valuable asset. The purpose of HCM is to maximize the collective human capital of a workforce by improving essential experiences and processes such as recruiting, onboarding, learning and development, and performance management. 

The four components of human capital management

Effective human capital management includes completing core administrative and HR duties and implementing strategic processes that enhance the employee experience, attract top talent, improve employee competencies, and reduce repetitive tasks for the HR department.

Core HR functions

• Payroll management and administration
• Benefits administration
• Onboarding and offboarding
• Compliance management
• Other administrative functions

Talent management

• Talent acquisition
• Compensation planning
• Learning and development
• Succession planning
• Performance management
• Performance reviews

Read more: Performance Appraisal vs. Performance Management: Understand the Key Differences

Workforce management and optimization

• Workforce planning
• Time and attendance management
• Budgeting
• Employee data and analytics

Service delivery

• Employee self-service portals
• HR help desks
• HCM software

Human resource management vs. human capital management

Both human resource management and human capital management focus on managing the people within an organization. Though similar, they're not quite the same as they cater to different parts of the employee experience.

Human resource management (HRM) focuses on the core HR duties required to manage employees in an organization. It’s based on processes, systems, and administrative functions like managing records, completing payroll, time tracking, and benefits administration.

Human capital management is a broader practice. It comprises the same administrative duties as human resource management but then goes a step further by also focusing on strategic practices that increase the value of the workforce and improve the employee experience.

The positive impact of HCM on organizations

Human capital management helps employees reach their full potential, in turn helping companies achieve their business goals. This practice has the power to transform companies of all sizes, from small businesses to enterprises.

Improve the recruiting process by combining compensation planning and a strategic onboarding process to streamline talent acquisition.

Retain top talent by promoting career growth. HCM includes providing new employees and existing employees with learning and development opportunities so they don’t feel stagnant in their roles.

Optimize employee placement by introducing processes that identify employees’ strengths, develop their skills, and ensure they’re in a position that suits them best.

Strengthen company culture and engagement by creating better performance and feedback processes that inspire clear communication between managers and employees. These conversations can help teams develop closer relationships, improve the company’s culture, and make the employees feel more engaged in their work.

Reach business goals faster by aligning your business strategy with your talent acquisition and training strategies.

Boost HR productivity by using HCM solutions that automate everyday tasks and save HR professionals time.

Human capital management software

HCM is also a category of software that automates HR processes and enables employee self-service, alleviating HR professionals of recurring tasks and giving them more time to focus on nurturing and engaging employees.

HCM systems allow your HR teams to manage most or all HR tasks in one place, including time tracking, attendance, managing PTO requests, payroll, onboarding, offboarding, applicant tracking, and record keeping. The best human capital management systems also include data and analytics functions. These functions allow HR professionals to gather and review internal data and identify trends to optimize the employee experience and get ahead of employee attrition.

Deel seamlessly integrates with your favorite HR platforms to help teams reduce manual tasks and streamline workflows. You can easily reconcile invoices, automate your accounting, centralize your documents, and more.