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 HCM?

What are the elements of human capital management?

Human capital management is made up of a series of administrative and strategic applications that include:

Benefits of human capital management

Human capital management can improve workforce productivity and help HR managers hire, engage and retain employees. In an integrated HCM solution where HR services are unified, you may also be able to eliminate costly redundancies and synchronize data into a trusted source of decision-making.

Human capital management (HCM) challenges

If you’re like most business owners, you might be concerned about overcoming today’s obstacles and anticipating tomorrow’s needs. Here are some common challenges that human capital management can help you address:

  • Talent strategy
    There are many opportunities throughout the employee lifecycle to engage your people and align their performance with your business goals.

  • User experience
    Technology that’s intuitive and easy to use can increase workforce productivity and improve morale.

  • Big data
    From optimized schedules to competitive compensation packages, data can power better decisions.

  • Administrative burdens
    Tools and resources that save time allow you to focus more attention on business strategy.

  • Systems integration
    Integrated systems may save you time, resources and money. They also help maintain visibility across borders.

  • Compliance
    Sound data and proactive approaches to changing regulations can help you maintain compliance.

  • Data security and privacy
    Gold-standard protections and assured response measures are critical to data security.

Why human capital management (HCM) is important

Human capital management strategy is critical to your success because payroll and HR cross every functional area of your organization and affect every employee. Evolving market forces also make HCM increasingly important. These trends include:

  • Changing workforce demographics and the ability to get work done in remote environments
  • An expanded availability of contract-based and freelance employees
  • Increasing compliance regulations in both the United States and other countries
  • Tightening labor markets and the need for specialized skills
  • The prevalence of team-based work structures
  • An explosion of available workforce data

How human capital management technology can help your organization

HCM technology presents an opportunity to deliver strategic workforce optimization for your business. It can help you:

  • Make data-driven decisions
    Predictive analytics and forecasting may lead to better decisions about compensation packages, work schedules and more.

  • Encourage business growth
    Cloud-based solutions that are adaptable and expandable allow for the management of more employees, transactions and data.

  • Increase profitability
    Automated workflows that replace manual tasks may reduce direct labor costs and administrative expenses.

  • Optimize talent strategies
    Chatbot-assisted applicant screenings, multimedia-based training and mobile self-service options are just a few of the ways technology can improve how you attract and retain talent.

  • Secure data
    Multi-layered protection and public-facing security alerts can help prevent data breaches and fraud.

  • Improve regulatory compliance
    Global and local monitoring capabilities may allow you to stay current with changing regulations.

What is human capital management software?

HCM software is an aggregate of multiple HR systems that use mobile and cloud-based technology to process data, run reports and create a smooth end-user experience. There are generally two types of service models – best of breed and unified.

With a best of breed approach, you purchase the applications you need from different vendors. This gives you greater depth of functionality, but also more complexity because you’ll have multiple vendors, contracts and user experiences. A unified solution, on the other hand, means working with just one vendor for all your HCM needs. Although this model may be simpler to maintain, the features are often not as robust as best of breed systems.

human capital management

How to choose a human capital management system

Choosing the right HCM partner for your organization is sometimes a daunting task, but it can be achieved with a focused, organized and strategic buying process.

  1. Build a requirements checklist that outlines the business goals dependent on HCM and how not achieving them will impact your organization. This can help you evaluate HCM solutions that best fit your needs.

  2. Create a plan of action that includes project scope, necessary resources, budget and team leaders.

  3. Identify the internal stakeholders who will be most affected by the project and keep them informed at all times.

  4. Familiarize yourself with your organization’s approval process for transformative projects and outsourced solutions.

  5. Secure stakeholder approval by presenting the solution and highlighting the business, financial and end user benefits. An HCM business case template can help you make your point effectively.

Human capital management FAQs

See what other HR professionals are asking about human capital management:

How do you build human capital?

Building human capital requires that you invest in your workforce. You can do this by:

  1. Hiring talented individuals for open positions
  2. Monitoring their performance regularly
  3. Enhancing their skills with on-going training and education
  4. Retaining them with competitive pay, benefits and other incentives

What's the difference between HCM and HRMS?

Although similar in many aspects, the difference between human capital management and human resources management systems is the size and breadth of their service packages. HRMS often provide core HR functions for small to mid-sized businesses, while HCM offers comprehensive applications across the entire employee lifecycle and can accommodate enterprise-level organizations. Detailed analytics and reporting are also typically included with HCM.

Does HCM include payroll?

Most fully-integrated HCM solutions automate payroll, which saves time and reduces error-prone data entry. Some also can accommodate flexible pay options, including early access to wages, pay cards and choice of pay frequency.

What are the functions of human capital management?

HCM covers the basic functions of HR – payroll, time and attendance, and benefits administration – as well as aspects of workforce management, such as employee training, engagement and retention, and compliance.

What are the objectives of human capital management?

The objectives of HCM are to enable strategic growth, empower employees and connect people and workflows in ways that support daily operations. To help achieve these goals, some solutions provide experiences that are personalized by function, location, team and individual.

This article provides practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal advice or other professional services.

ADP Editorial Team

ADP Editorial Team The ADP editorial team is comprised of human resource professionals with extensive experience solving complex HR challenges for businesses of all sizes.