Human Capital Management (HCM) and Human Resources Management (HRM) are sometimes used interchangeably; however, this is incorrect. While both aim at administering an organization’s personnel, HCM takes a wider perspective and a more strategic line in its operations. It must be noted that organizations that are working to optimize the use of their workers and reap rewards need to understand the difference between these two concepts.
What Human Capital Management is all about?
Human Capital Management, in the simplest terms, is an overarching approach to managing and optimising human resources, the specific focus being on the return on investment to the organization from its human resources. With regard to basic functional activities of management of human resources, HCM views employees as worthy resources who possess knowledge, skills, and potential which are harnessed for the advancement of the organization’s objectives.
Thus, HCM consists of many different activities such as:
Talent Acquisition and Recruitment: This involves determining the company’s recruitment needs and sourcing potential employees who will fill these spots.
Onboarding and Training: This involves managing the new employees so that the transition is smooth. Not only do new hires need that, but there are also many benefits in the organization for continuous education.
Performance Management: It involves planning the level of performance employees should achieve based on the goals set for them, the review of the employees’ performance, and providing recommendations for improvement of employee performance.
Compensation and Benefits: The organization’s management creates just and reasonable compensation and benefit systems that are in harmony with the organization’s needs.
Succession Planning: Identifying, anticipating, and advancing future organizational leaders within leadership development.
Employee Engagement and Retention: Help workers feel good about the work environment so that there is a low likelihood of staff loss.
HCM is influenced by data, and in some instances, technology is applied, such as Human Capital Management software, to help with performance evaluation, talent management, or aligning strategies with workforce strategies.
How HCM & Former HR Management Relate to Each Other?
HCM approaches are quite the same as most HR management concepts and procedures such as recruitment, selection, and placement, but their range, methods and emphasis vary. Here’s how:
Strategic vs Operational Focus
Normal HRM/HRD practices and policies target mainly operational areas such as recruitment and selection, training and development, remuneration, organizational structures, satisfaction and fulfilment, and effective communication and conflict resolution mechanisms. There tends to be an inward-focused orientation towards administration and operations, ensuring the institution is supported under guidelines on business as usual.
Employee-Centric vs. Asset-Centric View
Traditional HR management often regards employees as overhead. The concern centers on managing employee-caused costs, ensuring compliance with regulations and laws, and solving issues concerning employees and their relations with companies as they arise.
Conversely, HCM understands that employees are a resource–human capital–that can be enhanced and used to improve the organization’s revenues and develop this human capital over time. Here, the objective is to improve employees’ contributions to the company through ongoing education, performance appraisal, and promotional opportunities.
Data-Driven Decision Making
Human resources management in the traditional sense is done through processes that are usually manual and often based on past information. Although this may entail some degree of statistics, it is not as advanced and analytical as HCM.
HCM enhances plans by incorporating data and statistics in plans for the workforce, managing the acquired talents, and helping them grow, among other functions. HCM incorporates technology and thus brings about an understanding of how certain decisions can be made to achieve more desirable outcomes.
Conclusion
Thus, it can be concluded that Human Capital Management (HCM) is a more sophisticated practice than traditional HR management to manage people within an organization. Traditional HR seeks to handle the day-to-day affairs surrounding employees, while HCM seeks to develop employees as assets. HCM enables businesses to manage human resources efficiently by synchronizing human resources strategies with the company’s strategies, achieving long-term success and creating a more engaged, productive, and skilled workforce.
