Human Capital Management

Personalerinnen erstellen Konzept für Human Capital Management

What particular skills characterize your employees – and how can you deploy these talents to most effectively enhance your corporate success? Human capital management (HCM) can answer these questions. It harnesses internal human capital specifically to achieve your business goals. Human capital thus has a significant influence on corporate value enhancement and is a key economic factor.

What Is Human Capital?

The basis for human capital management is, of course, human capital. This comprises the skills/abilities, knowledge, and previous experience of an employee.

Intangible assets such as human capital represent the most important source of profit.

Valuable insights into the topic of human capital and related business trends can be found in Deloitte’s Global Human Capital Trends 2018.

Defining Human Capital Management

Human capital management is concerned with the entire HR management process. As an HR professional, you record, analyse, plan the deployment of, and manage the abilities, development, and assessment of your employees in a target-oriented manner. The actions you put in place should be geared towards achieving your business goals and vision.

Human capital management becomes a strategic tool with which to deploy your employees’ knowledge, skills, and talents for the good of the company. The focus here should be just as much on the individual employee as it is on the structure of different work groups, teams, or entire departments.

Recommended reading: The book “Human Capital Management in German Companies” by Martina Dürndorfer and Marco Nink focuses on the topic of human capital management, and human capital in itself, and provides valuable background knowledge.

Why Is Human Capital Management Important?

Studies prove the value of strategic HR to the entire company. Human capital management should be part of this strategy. Why? Dr Mark Huselid, an HR analytics expert, examined the relationship between human capital management systems, corporate strategy, and corporate performance in a study. He analysed 3,000 companies and their HCM systems over a period of ten years and discovered that the more training and feedback (focusing on skills and performance) was offered, the lower the employee turnover and the higher the sales volume was.

This graphic shows the outcomes delivered by the best and worst HCM systems:

The Basic Prerequisites for Successful Human Capital Management

Human capital management is an important value creation factor and intangible asset. It allows HR management and HR controlling to play a strategically important role. Because it is only by selecting qualified employees and providing them with continuous professional development that you can achieve your objectives (e.g. economic and social goals such as optimal employee deployment, needs of employees).

An important detail is the measurability of all criteria. This applies to the intangible value of employees as well as to the added value created by human resources. The following prerequisites are necessary to do this.

  • Human capital must be measurable through qualitative and quantitative assessments, empirical data, key metrics, and performance indicators.
  • Define clear corporate goals.
  • Define performance goals.
  • Communicate all goals clearly to the entire workforce.
  • Value-oriented core principles must be integrated into the organizational structure and become part of a fully implemented corporate culture.

Successful human capital management always involves carrying out specific activities and putting procedures in place.

This means collecting data, analysing it, and, based on your findings, developing activities that you reliably implement.

The Goals of Human Capital Management

The overarching goal of human capital management is to strengthen corporate performance and your competitive position. To achieve this, costs must be reduced over the long term while product, process, and service quality is improved. So how do you go about this? By planning, monitoring, and controlling – taking into account business and performance goals. The questions you should ask include:

  • Which activities create value? Which work against this?
  • Which factors add value and where are the risks?

To answer these questions, do not just analyse your employees but also consider teams, departments, and the entire workforce.

Four Steps to Successful HCM

Human capital management is a complex process that must be managed from day one with the utmost care. It should be implemented in four phases.

The Evaluation Phase

Analyse and document all the available skills and talents in the organization.

The Consolidation Phase

You now know the human capital available to your company. The next stage is to check whether the individual skills and talents are being appropriately used. This phase may involve major staffing changes and further professional development.

The Communication Phase

Communicate the planned initiatives to your employees in a face-to-face, in-house conversation.

The Implementation Phase

The last three phases will have enabled you to gather numerous insights, allowing you to reassign some employees to new fields of responsibility where they will be motivated to apply their talents. Be sure to maintain the highest possible standards through continuing professional development, feedback sessions, and by keeping a close eye on the current state of affairs.

When profound changes take place within a company, professional change management is indispensable. This is because the prerequisite for the successful implementation of the initiatives is acceptance on the part of all employees.

Two Employees Are Looking on a PC-Screen

The Digitalization of Human Capital Management Is Indispensable

Software solutions can support your human capital management. The determination of key metrics can be partly automated, and the software-supported documentation of the most disparate capabilities, skills, and talents further optimizes the human capital management process. A high-quality solution maps out all the necessary stages of in-house human capital management in detail.

Software can support you with many aspects of human capital management, e.g.:

  • Collecting and analysing all the relevant data.
  • Recording employee capabilities and skills.
  • Balancing business goals with available and qualitatively ideal human resources.
  • Achieving individual performance goals through specialized analyses and the resulting professional development concepts.
  • Managing performance reviews.

Effective performance management is the basis for human capital management. With performance management software you can ensure that all capabilities are properly documented. This makes it easier to filter employee strengths and weaknesses and so deploy your employees profitably.

The Benefits of Effectively Designed HCM

A successful company works with employees who are able to continually develop their abilities in order to adapt to the growing demands placed on them. Ideally, you will have already filled the various positions at your company with the appropriate people and ensured that they receive the training and professional development they require. Take into account the talents and personality of the employee, which, in combination with further skills development, can help them become the perfect candidate for a position.

The guiding principle of successful HCM is that, in your company, the right employee is always in the right place at the right time!

The modern knowledge and information society brings with it great pressure to innovate. So on no account should you forgo comprehensive professional development for your employees. Neglecting targeted employee development through training and continuous learning initiatives would be careless, as the knowledge of today is fast becoming the knowledge of yesterday.

Conclusion

Human capital management is a complex topic that first and foremost considers human capital as an intangible asset. Many companies underestimate this off balance sheet asset and unconsciously act to the detriment of their own long-term corporate success.

With the deployment of an intelligent software solution, however, human capital management becomes indispensable for the future success of a company. Make optimum use of all your available resources and always keep them up to date. This is the only way your human capital, and thus your company, will stay in shape over the long term.

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