Human Capital Management (HCM)

What Is Human Capital Management (HCM)?

HCM represents the most significant shift away from HR as an administrative function and toward alignment of HR initiatives with business objectives. While traditional HR tasks remain in place, HCM builds upon those tasks to create greater strategic opportunities. The goal of HCM is to drive organizational success by optimizing workforce efficiency and productivity.

HCM vs HR

HCM encompasses HR strategies but takes a wider view of utilizing an organization’s people. While HR traditionally encompasses the administrative functions of people management, HCM seeks to maximize the value derived from the entire employee lifecycle within an organization.

For example, HR might focus on providing individual performance feedback to help an employee improve. HCM, on the other hand, focuses on analyzing performance data across the organization to identify high-potential employees. This broader approach aids in succession planning and talent pipeline development for critical roles.

What Is HCM Software?

HCM software leverages technology to optimize the employee lifecycle. It tends to go beyond day-to-day HR tasks, like time tracking and payroll calculation, to instead focus on strategic HR methodologies that can make the entire workforce more efficient and successful.

For example, HCM software often uses predictive analytics to forecast future workforce needs, so that HR’s hiring and scheduling efforts run more smoothly.

HCM software often integrates with other HR systems to draw insights from the data an organization collects on its employees. For example, you may already have training software in place that runs digital training sessions. HCM software can build on that functionality by identifying an employee’s skills gaps and recommending training programs to fill those gaps.

HCM vs. HRIS vs. HRMS

When you first start exploring HR systems, you’ll find that the terms HCM, HRIS (Human Resource Information System), and HRMS (Human Resource Management System) are sometimes used interchangeably. However, these terms refer to different system types that focus on different aspects of people management.

HRIS software is focused on employee data management. Often the first type of HR software purchased by an organization, this system provides an alternative to manual data tracking.

By creating a central repository for employee information, businesses are better able to manage a growing workforce. Self-service portals are a common feature of HRIS software, giving employees better access to HR and empowering them to manage the information the organization holds about them.

HRMS software builds upon the data management functionality of an HRIS with greater strategic capabilities. Organizations that want to purchase a single system to store employee data and develop data-based reporting often turn to HRMS solutions.

Some HRMS platforms offer a wide range of reporting and analytics features, but this is on top of administrative-focused tools.

What’s an HCM Compared to HRIS and HRMS Software?

The primary difference between HCM and HRIS/HRMS software is how much the system focuses on strategic insights compared to administrative tasks.

HCM is focused first on business strategy. For example, it’s less common for HCM systems to provide employee data storage, but they always provide reporting and analytics tools.

As a result, many integrate with existing HR software to pull in data needed for HCM insight development. If your organization already has HR software in place, an HCM system can be a good solution to expand data-driven decision-making capability.

The vendors that sell HR software don’t always follow these definitions when labeling their software. You may find HCM software that more closely aligns with our HRMS definition because it provides an all-in-one solution. Or you may see HRIS software that includes more reporting than you’d expect from a data storage platform.

Therefore, it’s best to use the definitions of HRIS, HRMS, and HCM as a starting guide to find the software to suit your needs.

Key Features and Benefits of an HCM System

HCM software can strengthen many areas of your people strategy. The key features highlighted below go beyond administrative functions and are often unique to HCM software.

Talent Acquisition and Recruitment

HCM software can improve your talent acquisition and recruitment efforts in two ways: by attracting more candidates to your organization and by developing a good relationship with candidates in the talent pipeline.

First, automated job posting features can help identify the best times to advertise openings and post job listings across multiple platforms. You may also be able to compare a job listing with existing talent in your organization to identify internal hiring opportunities. Once candidates engage with your recruitment team, HCM software can help foster good relationships.

By automating updates and providing up-to-date information on the hiring process, you improve the candidate experience. This builds a stronger relationship with the individual candidate while also making it more likely that the candidate would speak favorably about your business to others.

Training

Many HCM systems integrate with learning management systems (LMS), adding analytics and strategy insights to your existing training methods.

For example, while a learning management system offers your employees a centralized platform for skill development, HCM can help employees identify the best training to support their career growth. You can also analyze training statistics to identify areas where there’s a skills deficit in your workforce.

Performance Management

While many forms of HR software enable employees to set goals, an HCM system focuses on aligning employee goals with organizational objectives. For example, an employee who expresses interest in developing leadership skills can be encouraged toward skills development that would benefit upcoming managerial roles in the organization.

Continuous feedback and performance review tools in HCM software also help to foster a culture of ongoing improvement. Tools that encourage regular communication between managers and staff ensure that employees aren’t left in the dark about their performance and opportunities.

Many HCM systems feature succession planning tools that help identify promising employees for key roles in the organization. These tools evaluate skills, training, and performance metrics to find the best internal candidates. Analyzing performance data can also help identify the skills and traits commonly found in high-performing employees in the organization.

Compensation

HCM software can help analyze market trends and compare that data with the compensation packages already in place. This helps ensure your organization sets competitive salaries and comprehensive compensation packages that are attractive to candidates and encourage employee retention.

Employee Engagement

Whether you select HCM software that collects employee engagement survey data or integrates with existing survey software, you can expect analytics tools that help define future initiatives. These tools highlight areas of concern and make recommendations for the types of initiatives that could lead to the biggest improvements.

Some organizations also rely on HCM systems to ensure employees are acknowledged for achievements and contributions. For instance, a manager can be automatically reminded that their employee has reached a tenure landmark. These types of reminders help foster a positive work culture by lessening the likelihood that achievements go unnoticed.

Workforce Analytics and Reporting

Most HCM platforms include a real-time analytics dashboard that offers insights into key HR metrics. This helps drive decisions that are based on the latest details. It also provides incremental insights into how HR initiatives are impacting the workforce.

Predictive analytics are also a common feature of HCM reporting. These tools help predict future workforce needs and identify talent gaps. For example, the system can learn from the staffing needs of a prior location launch and predict the needs for a similar launch in the future.

5 Signs That You Should Invest in HCM Software

HCM software can be a significant investment that’s out of reach for small or newer businesses. However, the value provided can justify the cost once your business reaches the right stage to take advantage of HCM features.

Here are five distinct signs that indicate your business is ready to harness the advantages of an HCM system.

1. HR Goals Are Not Connected to Your Business Objectives

Do your HR initiatives lack alignment with broader organizational goals? When there’s no structured plan for measuring HR effectiveness, it indicates a gap between HR strategies and business objectives.

HCM software aids in strategic workforce planning by analyzing current and future talent needs. It aligns HR strategies with business objectives by forecasting skills gaps, succession planning, and ensuring the workforce complements business growth.

2. Your Organization Lacks Employee Development Opportunities

If there’s a lack of structured employee development programs, training initiatives, or tools to nurture talent internally, you may need a more comprehensive approach to employee growth.

HCM systems offer features like training and development analysis, performance management tools, and career planning functionalities. These help in nurturing employee skills and aligning individual career paths with organizational objectives.

3. Frequent Employee Turnover Is Negatively Impacting the Business

When there’s a consistent turnover trend or difficulties in retaining key talent, it may signal that HR strategies aren’t effective. Identifying the reasons behind frequent employee turnover is vital to counteract this trend and boost employee retention.

HCM systems provide analytics on turnover rates and dive into the reasons for employee departures. This data assists in identifying retention strategies, fostering a better work environment, and aligning HR efforts to retain top talent. Many systems provide recommendations based on the data it uncovers.

4. Your Organization Is Unable To Effectively Measure Employee Productivity

If there’s no systematic approach to measure employee productivity or track performance metrics, then you’re likely facing a gap in evaluating employee impact on organizational goals. You may also be undervaluing high-performing employees if you lack a way to tie individual contributions to business outcomes.

HCM platforms include performance management tools that facilitate setting and tracking performance metrics that are aligned with business objectives. These tools aid in recognizing top performers and also highlight areas for improvement that can be most impactful for the business.

5. There’s an Unclear Employee Value Proposition (EVP)

When there’s ambiguity or lack of clarity regarding the company’s EVP (what’s offered to attract, retain, and engage employees), it creates challenges in aligning HR initiatives with employee needs and business objectives.

HCM systems support the development and communication of a strong EVP by defining employee benefits, career growth opportunities, and workplace culture. This ensures HR initiatives resonate with employees, as well as with the company’s overall goals.

How To Choose the Right HCM Software For You

HCM software provides targeted, strategic insights about your business. Take careful consideration of the areas you most want to appraise so that you can be sure the software you purchase will deliver the insights you need.

These factors are important to keep in mind:

• Integration with existing systems: It’s common for HCM software to pair with legacy software and may rely on data from your existing systems to run reports and analytics. Therefore, your new HCM software must integrate with existing HR software.
• Vendor reliability: Your HCM software vendor will likely continue to support you beyond initial implementation. Read reviews and ask questions to ensure they’re committed to providing effective support.
• Ease of use: Your chosen HCM software needs to be intuitive for all users. Whether your HR team is running reports or an employee is reviewing skills training recommendations, a user-friendly interface goes a long way to encouraging commitment.
• Scalability: Will the system be able to keep up with your organization’s growth over time? HCM software is often geared toward larger organizations, but if you start smaller, you still need to be certain that the software can grow with your business.

The Final Word on HCM Systems

Utilizing workforce data to make informed decisions is a vital step to improving overall efficiency and employee effectiveness. HCM systems elevate HR operations and tie HR initiatives more closely to business objectives.

With the ability to streamline workflows, empower employees, and drive data-backed decisions, HCM systems are driving the future of progressive, people-centric businesses. HCM software helps keep the focus on optimizing your organization’s people.

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