What is human capital management?
Human capital management (HCM) is a term and concept that has evolved over the decades. And it is a broad term, which has led to not only different definitions but also confusion over what it actually encompasses. But HCM is extremely valuable to businesses and organizations, so we’re going to break down what it is and how it adds value.
What is human capital management?
In simplest terms, HCM is everything an organization does in relation to its employees — from strategy to processes to the technology used to drive those strategies and processes. Looking at HCM holistically requires all three of these elements in place and working together.
When we say HCM is everything an organization does in relation to employees, we do mean everything. HCM covers talent management, learning and development, goals and performance, succession planning, the record-keeping of employee-related documents, HR compliance, recruiting, benefits, timekeeping, payroll and more.
HCM seeks to connect all of these pieces together not only through technology but also strategy and processes.
Human capital management software
If you’re a small business, chances are you manage much of the above lengthy list with half a dozen or more different software pieces. Timekeeping is separate from payroll, which is separate from benefits, which is separate from the application process, which is somehow separate from onboarding. There are so many specialized technologies out there, yet they don’t talk to each other.
This lack of integration creates extra work for your organization. Your staff has to input the same details in different software pieces or pull information you need from different areas. All this manual work not only takes time out of their day but also increases the chances of making errors through manual data entry.
Human capital management software is one integrated solution that covers the entire employee lifecycle. It starts with the application processes and goes through the interview stage to onboarding. It includes open enrollment, as well as setting up payroll and timekeeping for that employee. And it saves a huge amount of time in HR compliance, including ACA reporting.
There are other benefits of HCM software, too, like the ability for your organization to become more paperless. And by improving the employee experience by doing things like automating timekeeping, improving open enrollment, and enabling employees to focus on the more strategic elements of their job, you can increase their happiness and thus increase retention.
Strategic human capital management
Technology is just one piece of HCM. There’s also the strategic component. Everyone can implement technology, but if you’re not using them strategically, what real use are they? Technology should help you further develop your strategy.
This is especially helpful in assisting you, as a small business owner, in building the culture of your business around what you want your employees to experience. If you want to attract a certain type of employee to work for you, you need a culture that embraces and supports that type of person. You need to tailor your benefits package to attract and retain them.
For example, small business employers looking for tech-savvy employees will want to look at offering a flexible work schedule. And those looking to attract younger employees may want to look at a student loan repayment benefit. Perhaps your employer contribution could put 1% into a 401(k) plan and 2% into student loan repayment, instead of the typical 3% contribution into a 401(k).
And it’s not just about benefits. Process-wise, how does it look to the tech-savvy people you’re trying to hire if you have an onboarding processes that requires them to fill out a packet of paper forms and fax it back to your office? What if you sent them a welcome email with a link to an online onboarding experience and benefits enrollment process instead?
And then, when it comes to the review process, what does that look like for your organization currently, and how effective is it? Do employees meet with their managers often enough to obtain valuable feedback? Do you require them to set measurable goals that they feel motivated to achieve?
The strategic element of HCM is all about looking at what’s important to you and to your employees and determining how best to match that with your culture, benefits and employee experience.
The benefit of human capital consulting
Taking a big-picture view can be difficult when you’re in the middle of everything. And it can be tempting to just focus on the technology side of HCM. But evolving your culture to align with your goals means taking a hard look at how you currently do things and if there’s another way to do them.
When Wipfli is brought on in a consulting role, our goal is to ask leaders these questions and then use the answers to guide an evolution of culture using the technology, strategy and process elements of holistic HCM.
It doesn’t always take the form you might think. A lot of our clients using paper timesheets can really benefit from using an automated timekeeping system, but there’s more to the switch than just gaining time savings and greater visibility. Every decision you make, especially with compensation and benefits, has a big effect on employees.
For example, if an employee is used to filling out their paper timesheet with 8:00 a.m. when they typically arrive between 8:05 and 8:10, how will switching to an automated system affect them? If you have the system clock them in to the minute, they might feel you don’t trust them to get to the office on time and that you believe they’ve been stealing time from the company. But if you choose to have the timekeeping system round punches up or down to the nearest five or even 15 minutes, could that have a negative morale effect on employees who typically get to the office before 8:00?
Compensation and benefits are such a personal experience for employees that even the most seemingly minor details can have unexpected consequences if not considered and communicated properly.
When you have a consultant on your side, you take your technology implementation from a plug-and-play project to a strategic project that better aligns your decisions with your culture and desired employee experience.
The importance of human capital management
HCM technology greatly streamlines your processes and makes your organization more efficient, but when asking, what is human capital management, the strategic element can’t be discounted. HR managers today are far more strategic than in the past, thinking about their organization’s culture, how engaged employees are and how they can retain them and improve wellbeing. This holistic look at human capital management brings the added value to your business that can help you continue to grow and meet overall goals.
If you’d like to learn more about how Wipfli helps organizations take HCM to the next level, contact us.
Or learn more by reading on:
How streamlining human capital management improves your business operations
6 benefits of streamlining your open enrollment process
HR strategy: Create a proactive people-plan that speaks to your leaders’ real goals