Human capital management (HCM) can act as a key way to enhance corporate success. Essentially, it harnesses internal human capital to achieve your goals (based on the skills of your employees).
Therefore, human capital, more generally, has a significant influence on corporate value enhancement and is a key economic factor, as well. In this article, we dive into this concept and how you can use it to ensure success.
What Is Human Capital?
Defining Human Capital Management
Why Is Human Capital Management Important?
The Basic Prerequisites for Successful Human Capital Management
The Goals of Human Capital Management
Four Steps to Successful HCM
The Digitalization of Human Capital Management Is Indispensable
The Benefits of Effectively Designed HCM
What Is Human Capital?
If we are going to have a conversation surrounding human capital management, we need to start by defining human capital. These are the skills/abilities, knowledge, and previous experience of an employee. It is, essentially, the ingrained value that they bring to the table and to their role.
Looking for more valuable insights into human capital? You can find this, and more about related business trends, in Deloitte’s Global Human Capital Trends 2018 report.
What Is Human Capital Management (HCM)?
Let’s think of human capital management as a strategic tool. One that, when properly implemented, is designed to recruit, manage, develop, and improve to add value to the company. It’s not simply relegated to the employee, though, as it should also focus on the structure of different groups, teams, or entire departments.
Simply put, human capital management is concerned with the entire HR management process. The actions you put in place here should focus on achieving your business goals and overarching vision. It is therefore all-encompassing, while still focused on the skills and abilities of people within your workforce.
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Why Does Human Capital Management Matter?
Because studies have proven the value of strategic HR has to companies. Human capital management is 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 analyzed 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, lower employee turnover and increased sales volume occurred.
This graphic outlines the outcomes delivered by the best and worst HCM systems…
What Common Conditions Bring About Human Capital Management Success?
Human capital management is important in creating value. At the same time, it is also a bit of an intangible asset. But, it ultimately allows HR management and HR controlling to play a strategically-important role.
This is done by selecting qualified employees. Followed by providing them with continuous professional development that you can use to achieve your objectives (e.g. economic and social goals such as optimal employee deployment, needs of employees).
An important detail in all this is measurability. This applies to the intangible value of employees as well as to the added value created by human resources. The following prerequisites help achieve this:
- Qualitative and quantitative assessments, empirical data, key metrics, and performance indicators
- Clear corporate goals
- Defined performance goals
- Clearly communicated goals (to the entire workforce)
- Value-oriented core principles as part of a fully-realized corporate culture
Successful human capital management always involves carrying out specific activities and putting procedures in place. This means collecting data, analyzing it, and, based on your findings, developing activities to implement.
What Are The Goals of Human Capital Management?
The overarching goal of human capital management is to strengthen corporate performance and competitive position. To achieve this, costs must be reduced over the long term while product, process, and service quality are improved.
How do you go about doing this? By planning, monitoring, and controlling. Taking into account business and performance goals. These are some questions you should start by asking:
- Which activities create value? Do any work against it?
- Which factors add value and where are the risks?
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.
Four Steps to Successful HCM
From day one, human capital management requires the utmost care. That’s why it deserves to be implemented in four unique phases to ensure success. Here they are, in order:
1. Evaluation Phase
Analyze and document all the available skills and talents in the organization. This needs to be done comprehensively, so as not to miss any crucial detail or opportunity for improvement.
2. Consolidation Phase
Now that you know the human capital available to your company, now it’s time to work with it. The next step is to check whether individual skills and talents are being used appropriately. This phase may even involve major staffing changes and further professional development.
3. Communication Phase
Communicate the planned initiatives to your employees in a face-to-face, in-house conversation. This helps ensure transparency and your plans for the future, ensuring that your workforce is not surprised or shocked by any of the changes undertaken. It is important to be clear.
4. Implementation Phase
The last three phases enabled you to gather numerous insights. This allows 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 successful implementation relies on every employee ‘buying in’ to change.
Why Should You Digitize Human Capital Management?
Software solutions can support human capital management efforts. That’s because determining key metrics can be partially-automated, and software-supported documentation of capabilities, skills, and talents optimize the process further. High-quality solutions map out all the necessary stages of in-house human capital management in greater detail, as well.
Having software in place can support in many aspects of human capital management, such as:
- Collecting and analyzing relevant data.
- Recording employee capabilities and skills.
- Balancing business goals with available/optimal human resources.
- Achieving individual performance goals and professional development concepts.
- Managing performance reviews.
At its heart, effective performance management is the foundation for human capital management. When you use performance management software, you can ensure that all capabilities are properly documented.
This, ultimately, makes it easier to filter employee strengths and weaknesses. You can then deploy these skills in a way that makes sense for your workforce both productively and profitably.
What Are 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!
There’s always going to be pressure to innovate. So, you should never forgo comprehensive professional development for your employees. That’s the great part about human capital management because it ensures that your employees are not only fully-trained for the moment. But, that they have skills baked in that serve the future, too.
Why An HCM Matters For Your Business
Human capital management is a complex topic. It relies, though, on understanding human capital as an intangible asset. The fact is that many companies underestimate this asset and unconsciously to their own detriment.
For long-term success, the active deployment of an intelligent software solution is key. It helps emphasize the ‘management’ element of human capital management. It also makes use of all available resources, keeps them up to date, and help your company remain successful in the long run. If you want to work with your human capital, you need to do it the right way.
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