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HCM – Meaning | Components | Why to Use | Benefits | HCM SW

Human Capital Management converts traditional administrative functions of human resource departments like recruiting, training, payroll, compensation, and performance management into opportunities to drive engagement, productivity, and business value.


What is HCM?


Human Capital Management (HCM) refers to the strategic approach organizations take to manage and optimize their workforce. It encompasses a range of activities and practices aimed at recruiting, developing, managing, and retaining employees to enhance overall organizational performance and achieve business objectives. HCM goes beyond traditional personnel management by focusing on the value that employees bring to the organization and how their skills, knowledge, abilities, and potential can be maximized for mutual benefit.

Key components of Human Capital Management include:


Recruitment and Onboarding

Identifying and attracting the right talent for the organization’s needs, followed by effectively integrating new hires into the company culture and operations.

Performance Management

Establishing processes to set clear performance goals, provide regular feedback, conduct evaluations, and reward high-performing employees. This helps improve individual and team performance.

Learning and Development

Providing opportunities for employees to acquire new skills, enhance existing ones, and stay updated in their respective fields. This can include training programs, workshops, and professional development initiatives.

Succession Planning

Identifying and grooming potential leaders within the organization to fill key roles in the future. This ensures a smooth transition of leadership and maintains organizational stability.

Compensation and Benefits

Designing fair and competitive compensation structures, including salary, bonuses, benefits, and incentives, to attract and retain top talent.

Workforce Analytics

Leveraging data and analytics to gain insights into workforce trends, employee performance, and overall organizational health. This information informs decision-making and helps optimize HCM strategies.

Employee Engagement

Fostering a positive work environment where employees are motivated, satisfied, and emotionally invested in their roles and the organization’s success.

Talent Retention

Implementing strategies to retain valuable employees, including offering growth opportunities, recognizing achievements, and addressing concerns promptly.

Workforce Planning

Aligning workforce strategies with the organization’s long-term goals, ensuring that the right talent is available to support future business needs.

Diversity and Inclusion

Promoting a diverse and inclusive workplace that values different perspectives, backgrounds, and experiences, ultimately leading to improved innovation and decision-making.

Employee Relations

Handling employee issues, conflicts, and concerns in a fair and consistent manner to maintain a harmonious work environment.

HCM attracts a lot of importance for any organization as all of them rely heavily on the manpower contribution for their productive growth. A successfully implemented HCM can provide exponential growth in productivity, employee happiness index, and performance of the organization.

Human capital management considers the workforce as more priority than the cost of doing business. Just like any other asset, human capital is a core business asset and their value can be maximized through strategic investment and management.

Human Capital Management Software

It is an integrated suite of technologies which can help businesses manage their employees from hire to retire. This software supports a range of HR functions which includes recruiting, talent management, payroll and benefits administration. Such integrated modules include organization’s capabilities in order to manage the entire employee experience.

HCM software can be run and accessed in the cloud or on premises at company’s location. By using cloud-based HCM software, businesses can mainly reduce maintenance costs, increase access, improve experience and strengthen the security of employee records.

Along with these, the HCM software manages employee data in database. The leading HCM cloud software providers provide advanced analytics by helping employers gain insights into the best way to manage their employees.

Functional Components of Human Capital Management Solutions

Below are some of the main functional components of human resource capital management:


Human Resource

  • Employee Lifecycle – HR manages all aspects from hire to retire of all the employees, full-time and dependent, with localizations for more than 200 countries and jurisdictions.
  • Strategic HR – They monitor the employee’s personal and professional data, create job structures, and predict achievable targets with integrated solutions.
  • HR Service Delivery – They enable the Managers and employees to access their respective self service portal using any device.
  • Compliance and fraud detection – Improve health and safety via incident reporting and safeguard the data through fraud detection and autonomous security.

Talent Management

It allows the organizations to manage the complete talent lifecycle from effectively sourcing, recruiting to onboarding new hires, managing goals and performance, rewarding for performance, providing continuous learning, developing careers and conducting talent reviews and planning for best-fit successors which keeps employees engaged.

  • Talent Acquisition – Present a admiring candidate-centric experience and match the best-fit candidates to jobs by using innovative technologies.
  • Performance Management – Align individual and business goals, support employees with frequent checkpoints to carry out the performance.
  • Career Development – Identify the career opportunities and maintain a plan for development to bring employees closer to their career goals.
  • Talent review and succession management – To determine macro-organizational talent trends and foresight plans for future needs in leadership and other critical roles.
  • Learning – Meeting the demands of learning of the latest workforce and keep employee skills current. Leverage embedded intelligence to provide a adapt for learning experience.

Workforce Management

Here, they control labor costs, reduce manual processes and simplify compliance for all the employees globally.

  • Compensation –Monitoring, restructuring, budgeting and applying local as well as Global compensation Plans.
  • Total Compensation – Deep thought into all compensation activity to executives, managers and employees.
  • Pay-for performance – Advantage of performance ratings, achieve the goal and other metrics into compensation calculations.

Workforce Rewards

Human resource attracts and retain the right talent and drive value via differentiated workforce rewards strategy. They maximize the accuracy of payroll and compensation data using modern and innovative technology.

  • Compensation – Monitoring, restructuring, budgeting and applying local as well as Global compensation Plans.
  • Benefits – They deliver flexible benefit program options which adapt to unique needs of business.
  • Payroll – Human resource process payroll and support compliance by delivering accurate payroll, tax reporting and regulatory rules.

Reasons to use Human Capital Management

Human capital management is an main element in any organization which is for a good reason. However, not only does HCM helps organizations meet labor demands, but it also make sure employees can maximize their potential via recruitment, onboarding, development and retention-related activities. Once the system is in place, one can create an environment where employees are productive and remain in the organization in the long run.


Now, let’s look at some of the benefits of human capital management –

Make a better Human Resource Management System

It improves workforce management by ensuring the alignment between organization’s structure, business strategy and objectives.

Improve the Recruitment Process

They encourage the human resource to find the best talent via intelligent software, social media and employee referral programs. In the recruitment process, hiring managers can manage a large group of applicants and will be able to track each candidate’s status.

Identify Talent Gaps – Human Capital Management

Human capital management recognizes the needs of the labor and talent gaps in relation to the organization’s corporate strategy. When a company is planning to get individuals with a particular skill set, it helps to create a plan to find the talent and calculate costs ahead of time. At last, in order to fill the gaps, human resource can launch programs to enrich the skills of the employees.

Increase Employee Retention

Human resource helps to identify what employees need. This points the opportunities and benefits employees want through performance reviews, survey forms and other feedback sources. However, knowing about the workforce requirements helps to deliver better results and identify key areas of improvement that is necessary for growth of the company.

Boost Return on Investment (ROI) – Human Capital Management

For any business, it very important to consider the return of investment when hiring and compensating employees. One can improve the employees output by motivating them to perform better while they are performing their basic duties. On research, it is found that 2,00,000 managers and employers revealed that 79% of employees who quit their job is because of lack of appreciation as a major reason.

Benefits of Human Capital Management

Human Capital Management connects all the HR process which includes recruiting, compensation, benefits, talent management, learning, workforce planning, work-life solutions, time tracking and payroll.

The organization can make better and faster decisions with the help of human capital management solutions. They also help in delivering best-in-class employee experience, chatbots to automate workflows, improve efficiency and engage quickly.

Below are some of the key benefits of Human Capital Management Solution (HCM) Addressed:


Attract and Retain Talent – Human Capital Management

  • Increase in hiring speed and quality by quickly sourcing and recruiting the right candidates.
  • Increase engagement with work-life solutions as it help in motivating employees and deliver a superior employee experience.
  • Retain and nurture talent by providing professional learning and growth opportunities.
  • Increase the strength of bench by an alert planning for succession in leadership and other key roles.

Respond with Ability to Change

  • Aligning people strategy with business strategy
  • Predict workforce attrition with powerful insights
  • Adjust the workforce to organizational changes
  • Adapt the HR process to account for specific needs

Optimize Workforce Management and Spending

  • Segregate compensation by allocating the correct mix of monetary and non-monetary rewards
  • Manage time and labor related expenses
  • Maintain specific projects expenses.
  • Build a pay-for-performance culture

Streamline HR Operations – Human Capital Management

  • Consolidate non comparison of human resource management services
  • Leverage analytics for more intelligent workforce decisions
  • Automate manual processes globally and locally
  • Accelerate HR processes with self-service

Human capital management is concerned with the values of employees and how this value can enhance business results. HCM deals with digitalization process of HR activities which reaches a high efficiency and effectivity in human resources.

The employee engagement will be improved if there is a right integration of human capital management. The communication happens easily as there is a continual access to information and hence the mistakes are also less.

Read Also:

Center of Excellence – CoE Meaning, Types, Purpose, Benefits

Autocratic Leadership – Meaning, Characteristic, Benefits, Example

Chakrasthitha is a B.E (Medical Electronics) and has work experience in MatLab and Lab View Software as Design Engineer at BCS innovations and Manipal hospital as Biomedical Engineer. She is an author, editor and partner at Electricalfundablog.


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