What is Human Capital Management (HCM) (2023)

Many organizations experience the challenge of managing human capital along with other business aspects. As companies grow, develop, and recruit more employees, this issue gets to be more difficult.

However, with the innovative HCM solutions of today, human capital management does not have to be as unnerving or overwhelming as it was back then. Business owners do not need to struggle with this issue anymore as they can go about it by utilizing the techniques and guidelines that come along with HCM solutions.

HCM is fundamental in the successful run of a business’s operations. The history of human capital management shows that this is a set of comprehensive practices for a company for the recruitment, management, development, and optimization of employees to maximize its business value.

Employees are the most valuable assets of a company. Thus, hiring managers to strategize on developing policies which enhance employee experience thereby enabling them to retain their employees. According to research, a significant percentage of hiring managers experience the challenge of attracting and retaining talent, that is their most valuable employee.

Hence, the reason most opt to employ HCM solutions in their companies. But, before we dig deeper into how the human capital management system functions, its importance, and challenges, we first need to understand what it is. And, this article seeks to elaborate much on that.

Table of Content

  • Human Capital Management Definition
  • What Are the Problems of Human Capital Management?
  • Human Capital Management Solutions
  • Benefits of HCM
  • Major Components
  • Ways to Increase Human Capital Management
  • Features
  • HCM Strategies
  • HCM Software
  • HCM Functions
  • Difference between HCM vs HRM
  • Future
  • Upcoming HCM Trends

What is Human Capital Management?

The human capital management definition states that this is the process of employing, procuring, and developing organizational employees in an effective manner. The process undergoes strategic and tactical procedures, applications, and practices to capitalize on the economic value of a company.

(Video) What is Human Capital Management (HCM)? HCM Explained

HCM is also the backbone of a flourishing business that helps in managing the most expedient assets of a business; people. It incorporates onboarding, performance management, and budgeting.

(Also Read: Why Human Capital Management is important? )

Human Capital Management Problems

Even though human capital is the backbone of a business, there are problems that can render it a liability for a business. The problems include:

  • Poor performance management – performance management is crucial to the success of any business. Poor performance management often happens when employees do not share a purpose and management is lacking in its adoption of strategies to enhance performance. This is a major problem that can render human capital a big liability to a business.
  • Poor use of employees’ analytics – workforce analysis is an essential factor in the success of an organization. Through the analysis of one’s employees, it becomes easier to monitor and invest in areas of waning potential. However, the poor use of employees’ analytics can lead to problems.
  • Lack of proper handling of organizational change – it is crucial to anticipate organizational change and make proper arrangements. HCM has to consider the future and anticipate changes. Staying up-to-date is key in ensuring HCM mismanagement never happens.
  • Lack of strategic workforce planning – HCM needs to ensure that it has eyes on everything within a business. Strategic planning means that there are people who anticipate problems and thus prepare contingency plans. HCM has to stay in anticipation of changes and challenges in the industry.
  • The cost of unsolved issues and challenges – every challenge or issue, no matter how small, needs to find the HCM with plans to counter. Leaving issues unsolved could lead to more problems ahead. Therefore, it is crucial that HCM considers the bigger picture at all times to avoid small problems that eventually become challenging to solve.

Resolving HCM Problems

For a successful run of the HCM, the management of a business needs to manufacture solutions to the challenges of human capital management above. In this article, we highlight some of the obvious solutions that businesses can use.

  • Developing contingency plans – contingency plans help ensure that a business prepares for problems it anticipates could happen.
  • Proper use of workforce analytics – proper use of workforce analytics can help reveal specific areas that need tweaking.
  • Introduction of strategic planning in running the business – strategic planning means a business knows what it is doing and is ready for any problems that can ensue.
  • Proper handling of organizational change – to avoid instances of resistance and backlash because of organizational change, HCM needs to proper handling of organizational change.

Benefits of Human Capital Management

  • Find the best places for workers that can lead to the complete utilization of their skills.
  • It helps to extract the best out of employees.
  • Promotes the flow of information in the workplace.
  • Leads to employee growth through training and development.

(Also Read: Top Benefits of Human Capital Management to Know)

Components of Human Capital Management

  • Recruiting or hiring – involves the process of finding the right people that fit within the principles of the company.
  • Career development – this involves the enhancement of the employees’ careers.
  • Mentoring of employees – this involves offering guidance and advice to employees on aspects of their personal lives as well as work.
  • Motivating employees – this is giving employees the mental edge that drives them or helps them to keep working hard and attaining their goals as well as the company’s goals.
  • Development of performance management strategies – this component involves the development of strategies that help monitor the performance of employees as well as find ways to make them better.

Ways for Organizations to Increase HCM

To increase HCM, organizations need to do the following:

  • Have more employee training and development sessions.
  • Consistently monitor employee performance.
  • Encourage direct communication.
  • Have clear roles or define roles.
  • Motivate employees.

Features to look for in an HCM Solution

The features to look for in an HCM solution include:

(Video) What is Human Capital Management (HCM)?

  • Integration – is the solution capable of communicating with other systems?
  • Presence of single-user records.
  • Is the solution cloud-based?
  • Reliability of customer support.

Best Human Capital Management Strategies

Besides the tools of managing primary functions of human capital management such as time and attendance, payroll, and benefits, today, this HR software addresses integral workforce management necessities including;

  • The hiring of new employees.
  • Cross-company collaboration. Working together with other organizations to achieve their goals.
  • Talent management. Enhancing employee experiences to retain employees.
  • Skills development efforts. Employ training and development efforts to enhance the performance and self-fulfillment of organizational employees through educational means and programs.

Pioneering HR management software features are even relying on advanced analytics and AI to provide engagement and productivity acumens. With the vast range of options, the HCM software tends to be overwhelming. Hence, there is potential for organizations to purchase the wrong products or to overspend and overcommit.

The human capital management software depends on human proficiency to construct, forecast, and implement strategies or tactics which will create and manage effective workforce output.

HCM software

HCM software systematizes the benefits plans, real-time eligibility tracking, benefits enrollment process, premium tracking, and career track. So, in case you are wondering and asking, “How can employees’ motivation support improve human capital management performance?” you need not wonder anymore.

Through training, coaching, addressing deficient performance behaviors, appraisals, and rewarding the achievement of specific goals and objectives, companies can manage the performance of their employees thereby improving HCM performance.

(Download:Buying Guide on HCM Software)

Functions of Human Capital Management

HCM plays an integral role in organizations. So, if you are wondering why human capital management is important, below are the functions of this essential arm of organizational management.

(Video) Topic 7: Learning Solution SAP S4/HANA Human Capital Management (HCM) Module - Case Study GlobalBike

  • Hiring – this involves the recruitment of new talent.
  • Managing – this is control or exercising power over the organization’s components of management.
  • Training – Training is helping the workforce attain the highest competency levels.
  • Ensuring the retention of talent – after hiring, it is also the work of HCM to ensure that this talent remains at the organization.
  • Applicant tracking – applicant tracking involves tracing applicants’ data during the recruitment or hiring process.
  • Employee onboarding – this involves the integration of new employees into an organization’s culture.
  • HR management solutions – HCM also offers HR management solutions. This can involve dealing with employee issues to offering guidance on matters that could bring some sort of friction between management and employees.
  • Benefits administration – HCM also administers benefits. This involves the creation and management of benefits programs as well as enrolling new employees in the program.
  • Time and attendance tracking – HCM are responsible for tracking the time and attendance of employees every day. In some organizations, this determine payment.
  • Payroll and tax filing – HCM also does payroll and tax filing for its employees. Since it is the arm that deals with benefits, it is also the arm that ensures all employees receive their salaries and that each is paying their taxes.
  • Performance management – since it is the arm of an organization that deals with employees’ issues, HCM also ensures that it tracks and monitors the performance of all employees.
  • ACA compliance – ACA deals with risk management. It is, therefore, the work of HCM to ensure that an organization complies with the risk management precepts.
  • COBRA benefits administration – it is also the work of HCM to administer COBRA benefits to former employees after a job loss.
  • Pay cards – it is also the responsibility of HCM to issue employees with pay cards. These work like debit cards and work for a particular pay period.
  • Employee verification – it is also the work of HCM to issue employee verification letters to the employees. This confirms their status as being part of a particular organization.

Human Capital Management Vs Human Resource Management

As aforementioned, HCM, human capital management is the process of acquiring, employing, and developing the employees of an organization in an effective manner through tactical and strategic applications, practices, and processes to boost the economic value of a business.

HRM, on the other hand, is a system that encompasses elements of the HRIS (Human Resource Information Systems) that focus on time, core payroll, and labor.

HCM describes functions that are a fundamental part of the strategic human capital management in a company from applicant tracking and talent to analytics, time, and attendance. Additionally, it incorporates performance management, onboarding, and budgeting.

HRM comprises HRIS elements and features that concentrate on core payroll. Also, it includes technology systems that organizations use to manage HR functions, for instance, management reporting, benefits administration, and employee self-service.

Future of Human Capital Management

  • The future of HCM should expect global growth.
  • Enhancement of analytics especially in job assessment and the hiring process.
  • Increase in hire-as-needed tendencies.
  • An increase in the aging workforce.
  • Enhancement of the need for life-work balance.

Human Capital Management Trends 2020

  • Flexible working environments – more people will be working from either their homes or anywhere in the world other than their offices.
  • Shift to the gig economy – more employees will be working on contract or short-term engagements. People will be working for a short period and then take their services elsewhere.
  • Contractual work to increase – this works the same as the shift to the gig economy. Permanent workers will reduce as more contractual workers emerge.
  • Increase in the use of the English language in global business – English will continue to dominate in the business work as more people will be using it.
  • Increase in the use of HR chatbots – AI continues to increase its influence insignificant aspects of organizational functions. In 2020, HR chatbots will be in great use as HR seeks to interact with more people.
  • Gamification – Gamification is a trend that will seek to enhance engagement, participation, as well as loyalty either among employees or clients of an organization.


Several companies encounter the difficulty of managing human capital together with other business aspects. As organizations continue to grow, develop, and hire more people, this problem gets out of hand. However, today, solutions are all over and organizations can sort their issues fast.

Furthermore, it is crucial that organizations remain adaptable. Change happens fast, but only those who prepare beforehand get to reap the benefits. So, organizations need to make use of strategic planning teams and stay ahead of the changing business environment. Basing one’s thoughts on the above guide, the answer to the question “Is human capital management always capitalized,” is a resounding yes.


(Video) What is Human Capital Management (HCM) ? | HCM Simplified

Kenny Gill is a senior advisor and writer in the department of CustomEssayOrder. He is familiar with corporate events, sports, education. He is responsible for supporting internal communications needs for specific business functions, as well as writing, creating and editing various quality content. He performs a leading role in developing and creating good content, chiefly for different types of audiences. His professional Essay Writing Service is one of the best in this niche

Other Useful Resources:

Top 6 Human Capital Management Principles

Human Capital Management Is Critical to Every Organization – Here’s Why

6 Future Trends of Human Capital Management (HCM)

Why Human Capital Management Is Important in SAP

4 Challenges of Cloud-Based Human Capital Management Technology


What is human capital management HCM platform? ›

Human capital management (HCM) is the process of hiring the right people, managing workforces effectively and optimizing productivity. It has evolved from a mostly administrative function to a critical enabler of business value.

What is human capital management in simple words? ›

Human capital management (HCM) transforms the traditional administrative functions of human resources (HR) departments—recruiting, training, payroll, compensation, and performance management—into opportunities to drive engagement, productivity, and business value.

What is HCM HR system? ›

HCM (human capital management) software is an integrated suite of technologies that can help businesses manage their employees, from hire to retire. HR software applications are referred to as: HRIS (human resources information system).

What is the difference between HR and HCM? ›

HRM software provides core HR needs for small and mid-sized businesses. HCM solutions, on the other hand, cover a wider range of functions across the entire employee lifecycle and are designed to support the global compliance and international payroll needs of large enterprises.

What are the four components of HCM? ›

Important Components of Human Capital Management Strategies

Recruiting and Applicant Tracking. Onboarding. HR Management. Benefits Administration.

Why is HCM important? ›

Human Capital Management is essential for hiring, managing, training and retaining talented and high performing employees. Human Capital management plays an important role in the recruitment process. It ensures that human resource professionals hire individuals who really deserve to be in the organization.

What are 4 examples of human capital? ›

Examples of human capital include communication skills, education, technical skills, creativity, experience, problem-solving skills, mental health, and personal resilience.

What are the 3 elements of human capital? ›

The three human capital components – time, talent and energy – are actively focused on by some of the world's fastest growing companies, according to Bain & Company, which recently conducted research into the area.

What are the 3 kinds of human capital? ›

You can separate human capital into three types: knowledge capital, social capital, and emotional capital.

What are the 4 types of HR? ›

Types of Human Resources Management Jobs
  • Recruitment and Selection. Human resource management jobs include professional recruiters who filll vacancies within an organization. ...
  • Compensation and Benefits. ...
  • Health and Safety. ...
  • Labor and Employee Relations. ...
  • Training and Development. ...
  • Risk Management. ...
  • Managers and Directors.

What are the 4 HR systems? ›

The four (4) core HRM Systems consists of: (1) recruitment, selection, and placement; (2) learning and development; (3) performance management; and, (4) rewards and recognition.

Why is HCM important to organizations? ›

Human capital management (HCM) sees employees as a capital, meaning that by investing in employees, organizations can grow their capital in the future. HCM helps your organization hire the right people. This will prevent you from hiring employees who don't really fit at your organization.

What are the challenges of HCM? ›

Common human capital management challenges
  • Talent acquisition and onboarding. ...
  • Strategic workforce planning. ...
  • Leveraging workforce analytics. ...
  • Training and development. ...
  • Change management.
25 Mar 2020

Is HCM a workday? ›

Designed for the way people work, the Workday Human Capital Management (HCM) suite enables you to embrace change by providing workforce and operational insights. When your global information comes from one unified source, it's always up to date and available anytime, anywhere.

Is Workday HCM easy to learn? ›

Yes, Workday HCM is easy to learn and CloudFoundation covers the best workday hcm training online for anyone who is interested to take workday course.

What are 3 key factors to improving human capital? ›

Investing in people through nutrition, health care, quality education, jobs and skills helps develop human capital, and this is key to ending extreme poverty and creating more inclusive societies.

What are the key roles of human capital management? ›

Human capital management (HCM) transforms the traditional administrative functions of human resources (HR) departments—recruiting, training, payroll, compensation, and performance management—into opportunities to drive engagement, productivity, and business value.

What are the six themes in human capital management? ›

In this regard, six issues have been identified and analyzed, which include: promoting changed mindsets; proactively facilitating the architecture of intangibles; leadership development; leading change; supporting learning and innovation; and HR measurement.

Which HCM is best? ›

Top 10 HRMS & HCM Software
  • Paycom.
  • BambooHR.
  • Rippling.
  • UKG Pro.
  • Workday HCM.
  • UKG Workforce Central.
  • isolved.
  • Ceridian Dayforce.
28 Oct 2022

What are the five stages in the management of human capital? ›

According to the ELC model, this ongoing relationship has five stages: Recruitment, Onboarding, Development, Retention, and Exit or Separation. You can turn the employee lifecycle model into a framework that provides a different engagement strategy for each stage.

What are 10 examples of human capital? ›

Human capital can include qualities like:
  • Education.
  • Technical or on-the-job training.
  • Health.
  • Mental and emotional well-being.
  • Punctuality.
  • Problem-solving.
  • People management.
  • Communication skills.
13 Sept 2022

What are the five characteristics of human capital? ›

Human capital, as we discussed, is characterized by factors such as a person's experience, tenure, education, training, and health. For example, the earnings of a person with a college education have shown to be higher in most cases than a person with less education.

What are the two main source of human capital? ›

Hence, expenditure on education and health are important sources of human capital formation.

What are two main components of human capital? ›

This essay discusses these concepts historically and focuses on two major components of human capital: education and training, and health. The institutions that encourage human capital investment are discussed, as is the role of human capital in economic growth.

What are the factors of human capital? ›

Factors that determine human capital
  • Skills and qualifications.
  • Education levels.
  • Work experience.
  • Social skills – communication.
  • Intelligence.
  • Emotional intelligence.
  • Judgement.
  • Personality – hard working, harmonious in an office.
22 Sept 2019

How do you develop human capital management? ›

Here are eight key tips to keep in mind.
  1. #1: Develop an internal communications strategy.
  2. #2: Invest in a workforce communications platform.
  3. #3: Embrace AI and machine learning.
  4. #4: Listen to employees.
  5. #5: Use technology to measure employee engagement.
  6. #6: Focus on the employee experience.
7 Dec 2018

What are human capital models? ›

The human capital model (Becker 1962; Mincer 1962) suggests that an individual's decision to invest in training is based upon an examination of the net present value of the costs and benefits of such an investment.

What are the 7 roles of HR? ›

What Does an HR Manager Do? 7 Functions of the Human Resources Department
  • Recruitment and Hiring.
  • Training and Development.
  • Employer-Employee Relations.
  • Maintain Company Culture.
  • Manage Employee Benefits.
  • Create a Safe Work Environment.
  • Handle Disciplinary Actions.

What are the 7 core HR functions? ›

Human Resource activities fall under 7 core functions: Recruitment and Selection, Training and Development, Performance Management, Employee Relations, Employment Law and Compliance, Compensation and Benefits and Administration, Payroll & HR Systems.

What are the 3 primary HR activities? ›

The authors highlight three primary activities for managing employees and show their interrelationships: work design and workforce planning, management of employee competencies, and management of employee attitudes and behaviors.

What are the three types of HR activities? ›

The three major roles in human resources are; administrative, change management, and people management. Administrative tasks include hiring and monitoring of employees, managing payroll and benefits, and development of policies and guidelines.

What are the five components of HRM system? ›

In short, human resource activities fall under the following five core functions: staffing, development, compensation, safety and health, and employee and labor relations.

What are the modules in HCM? ›

HCM tools enable users to track the employee-data changes automatically, and the cloud connectors update the benefits. The crucial features of the benefits of administration include health insurance, savings account, expenditure account, flex plans, retirement plans, and many other benefits from the unified system.

Which is the most likely cause of HCM? ›

Hypertrophic cardiomyopathy is most often caused by abnormal genes in the heart muscle. These genes cause the walls of the heart chamber (left ventricle) to become thicker than normal. The thickened walls may become stiff and this can reduce the amount of blood taken in and pumped out to the body with each heartbeat.

Can you improve HCM? ›

There is no cure for hypertrophic cardiomyopathy (HCM). However, several treatments are available to relieve or eliminate symptoms and provide protection against sudden death, providing the vast majority of HCM patients the opportunity to achieve normal longevity with an excellent quality of life.

Is Workday HCM or ERP? ›

Meet Workday Human Capital Management (HCM). A talent strategy that's based on skills. Our machine learning helps you understand your people's skills today and build talent management programs around the skills you'll need tomorrow.

Is Workday HCM in demand? ›

There is high demand for Workday HCM consultants.

What does a Workday HCM analyst do? ›

The Workday HCM Business Analyst will be responsible for performing research and analysis on solutions to meet the needs of the business and delivering on recurring administrative activities.

How do I start a career in Workday HCM? ›

In order to start a career in Workday HCM, one has to attend the training and get certified in Workday HCM.
Career Opportunities in Workday HCM:
  1. Workday Consultant.
  2. Workday Architect.
  3. Workday Manager.
  4. Workday Analyst.
  5. Workday Project Manager.
  6. Workday Functional Consultant.
17 May 2018

Is coding required for Workday? ›

Every business application needs a programming language. In the same way, Workday Studio also needs a programming language. Workday Studio is not just limited to a single language. It uses a variety of languages like Java, Python, Ruby, etc.

Who uses Workday HCM? ›

Who uses Workday HCM? Workday HCM is mainly used by CHROs within mid-size to large enterprises across the telecommunication, education, financial services, healthcare, manufacturing, non-profit, retail and technology industry verticals.

› blog › what-is-workday-hcm ›

It comprises all the activities from hiring an employee to retaining them. All these management activities are taken care of by the Human Resource department of...
Overall, Workday human capital management or Workday HCM is a human resource software that provides end-to-end HR solutions. This is a single solution provider ...
Key Human Capital management modules: · Human resource management · Benefits of administration · Talent management · Workforce plann...

What is Workday HCM used for? ›

It is the only global enterprise application that unifies human resources, benefits, talent management, payroll, time and attendance as well as recruitment. Workday HCM offers intuitive, self-service capabilities that help you to organise, staff and pay your global workforce.

What is HCM software and what are the HR software benefits? ›

HCM software, also known as Human Capital Management Software, is a comprehensive digital HR solution that enables organizations to automate HR operations and manage their employees in the best way possible.

How can a human capital management HCM platform provider benefit this company? ›

HCM benefits businesses by giving them the ability to make critical decisions based on reliable, accurate, and timely information. HCM systems help businesses integrate data into a single employee record, support mobility, and help increase efficiencies for the entire workforce.

What is HCM cognizant? ›

Human Capital Management (HCM) plays a crucial role in your organization's ability to fully optimize its talent and people processes.

Is Workday HCM easy to learn? ›

Yes, Workday HCM is easy to learn and CloudFoundation covers the best workday hcm training online for anyone who is interested to take workday course.

Is HCM same as ERP? ›

Let's make one distinction clear: An ERP system is not the same as an HCM system. Ultimately, their intended use sets them apart. An ERP system is primarily for organizations that need to integrate departments to share data and workflows.

Is HCM an ERP system? ›

An Enterprise Resource Planning platform, or ERP software system, is primarily used for businesses who need to integrate and establish a means of communication between departments to share data and other workflows with one another.

Is workday an HCM or ERP? ›

Workday ERP is a true cloud, unified SaaS software system for finance, human capital management (HCM), planning, professional services automation, project management, analytics, and business intelligence. ERP is enterprise resource management, used for business processes and data transformation enterprise-wide.

What are the 4 HR systems? ›

The four (4) core HRM Systems consists of: (1) recruitment, selection, and placement; (2) learning and development; (3) performance management; and, (4) rewards and recognition.

What are the challenges of HCM? ›

Common human capital management challenges
  • Talent acquisition and onboarding. ...
  • Strategic workforce planning. ...
  • Leveraging workforce analytics. ...
  • Training and development. ...
  • Change management.
25 Mar 2020

What are the five stages in the management of human capital? ›

According to the ELC model, this ongoing relationship has five stages: Recruitment, Onboarding, Development, Retention, and Exit or Separation. You can turn the employee lifecycle model into a framework that provides a different engagement strategy for each stage.

Who is responsible for human capital management? ›

There is a common misconception that only the HR Department is responsible for managing human resources. Actually, it is the responsibility of both the Line Management and HR Department. Line Managers issue orders or directives in an organization, while Staff Managers issue advice in the matters related to business.

What HCM does Accenture use? ›

Accenture myConcerto is an insight-driven digital platform that brings together the power of new Oracle HCM solutions and technologies with Accenture's industry and functional expertise.

Is Workday HCM in demand? ›

There is high demand for Workday HCM consultants.

How do I become a HCM consultant? ›

What you'll learn
  1. Basic understanding of SAP ERP Human Capital Management.
  2. Overview of the main functionality of SAP ERP HCM.
  3. SAP HCM Navigation and Terminology.
  4. Business Processes and HCM Structures.
  5. Step by Step Configuration.


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