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What is Human Capital Management?


What does the term Human Capital Management?

Human Capital Management (HCM) is a term used to describe the methods and processes that an HR department uses to recruit, manage, and develop employees within an organisation. The concept originates from the idea that employees are the most valuable asset an organisation has, and the valuable expertise they hold is crucial for the organisation to achieve its goals.

The terms HCM and Human Resource Management (HRM) are often used interchangeably to refer to the same processes, but originally, there were some differences. HCM was a broader concept that encompassed more than just core functions—it could involve surveys among employees and methods for analysis—while HRM was limited to basic HR tasks such as onboarding and offboarding. However, today these terms have largely merged and are used interchangeably.

When applied correctly, the methods in HCM can help create a strong organisational culture that supports employee development. By providing opportunities and encouragement to use their talents and skills, individual employees gain greater control over their own careers. In most cases, this positively impacts motivation and sense of belonging, and, not least, contributes to the overall results of the organisation.


What processes are used in HCM?

hcm-blog-image2-94692045HCM includes a wide range of strategic and administrative practices and processes including the following:

  • Workforce planning: this process involves forecasting and planning the organisation's future workforce needs, identifying necessary skills and competencies, and determining the optimal size and structure of the workforce.

  • Recruitment: this process involves finding and recruiting individuals with the necessary skills and qualifications who also fit into the organisation's culture. It includes activities such as job analysis, candidate screening, interviews, and job offers.

  • Onboarding: once candidates are hired, this process focuses on providing them with a smooth start in the organisation. It includes activities such as orientation programs, document completion, introduction to company policies and culture, and initial training..

  • Continuous performance management: this process is about setting performance expectations, providing feedback, evaluating performance, and recognising and rewarding employee achievements. It includes activities such as goal setting, performance evaluations, and development discussions.

  • Skills development: this process focuses on improving employees' skills, knowledge, and abilities. It includes activities such as training programs, workshops, and e-learning to support individual and team development.

  • Engaging and retaining employees: this process aims to create a positive work environment, promote employee satisfaction, and retain top talent. It includes activities such as employee surveys, feedback mechanisms, and initiatives to promote work-life balance and employee well-being.

  • HR-analytics: in this process, data and analysis are used to measure and analyse various aspects of personnel management. It involves tracking key HR metrics, analysing workforce trends, and making data-driven decisions to optimise HR strategies and processes..

These processes are interconnected and form a comprehensive framework for effective management of an organisation's employees. When executed correctly, they can contribute to engagement and well-being and help ensure that everyone works as efficiently as possible toward the same goals.


What is an HCM system?

hcm-blog-image1-610553627An HCM system (also known as an HR system) is a data system that helps you digitise all the processes within HCM. This saves you time and money by automating tasks that consume a lot of time. By digitising HR tasks, you achieve the following benefits:

  • Streamlined HR processes: an HR system automates and centralises various HR processes, such as onboarding new hires, absence management, overtime, performance evaluations, and much more. By digitising these tasks, the system reduces manual paperwork, eliminates duplicate work, and increases overall efficiency, allowing HR staff to focus on strategic work.

  • Improved data management: HR systems offer a secure and centralised database for storing employee information (master data), including personal information, employment history, skills, performance, training, and more. This ensures accurate and up-to-date data, reduces the risk of data loss or errors, and makes it easier to access information when needed. It also enables HR staff to generate comprehensive reports and analyses that allow more informed decision making.

  • Enhanced self-service for employees: many HR systems include self-service portals or mobile apps that give employees access to and the ability to manage their own information. Employees can update their personal details, request time off, enroll in welfare programs, access training materials, and communicate directly with HR staff through the system. This gives employees more independence, saves time for both employees and HR staff, and promotes transparency within the organisation.

  • Compliance: HR systems help organisations comply with various laws, regulations, and reporting requirements. They can generate reports and access forms, health and safety regulations, and other legal obligations. By automating compliance processes, the system helps reduce the risk of fines, audits, and legal issues.

  • Strategic decision making: with the extensive data and analysis features that HCM systems offer, organisations gain valuable insights into their workforce. HR staff can analyse trends, identify skill gaps, assess employee performance, monitor training needs, and track employee satisfaction and engagement. This insight enables data-driven decisions in areas such as talent development, succession planning, performance management, training and development, and overall HR strategy.

An HCM system can also provide a range of positive effects throughout the organisation. Firstly, it streamlines and automates administrative tasks, saving you time and reducing the number of errors. Secondly, the system serves as a centralised platform for managing employee data, promoting effective communication, collaboration, and data-driven decision-making. Additionally, an HR system helps ensure compliance with laws and regulations and ensures that HR processes are accurate, transparent, and confidential.


David Ditlev Rasmussen

David Ditlev Rasmussen, 04 February 2019

David Ditlev Rasmussen, M.Sc. IT, Head of Regional Marketing at CatalystOne Solutions. David has worked with digitization of HR for 7+ years for CatalystOne Solutions. He has more than 10 years of management experience and a passion for behavioural design, psychology and has regularly published articles and posts on management- and HR solutions and HR-tech.

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