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What is human capital management – and how do you strategize it?

Unlock the full capability of your business with effective employee management strategies. Find out how to recruit, develop, and keep the best employees while fostering a high-performance work environment. Dive into practical tips for using technology to simplify processes, key performance indicators (KPIs), and evaluating success in a straightforward manner.

Keith MacKenzie
Keith MacKenzie

Passionate about human resources, employment, and business management, and an expert at sharing that expertise.

The secret sauce to an organization’s success lies in how well it manages its human resources. Human capital management (HCM) is all about treating employees as valuable assets rather than mere resources – in other words, you’re treating them as people. They aren’t just cogs in the big machine that is your business.

Let’s start by defining what HCM means: it’s a strategic way of managing employees that acknowledges their worth as a crucial driver of competitive edge. It’s about attracting, nurturing, and managing talent to open up their full potential and empower them to contribute individually and collectively to the success of your business.

So, it makes sense to invest resources in your human capital management strategy. Your teams will be high performing and engaged – and you’ll see fewer people leave, and your overall work culture will become a place where people want to work.

Also, smart HCM can help your business adapt more swiftly to shifting market dynamics, ensuring you have the right people with the right skills in the right roles. And when you align your HCM with your overall objectives and values, you can cultivate a culture of perpetual improvement and growth.

The building blocks of human capital management

So, what’s involved in a successful human capital management strategy? The primary nuts and bolts of HCM include:

1. Recruitment and hiring

What you’re looking to do here: Lure and pick the cream of the crop to meet organizational needs.

Recruitment and hiring are crucial components of HCM, as they involve pinpointing and selecting top talent to meet organizational needs. Successful recruitment strategies require identifying the skills, knowledge, and experience needed for each role and crafting targeted recruitment campaigns to draw in the right candidates.

Hiring decisions should be grounded in a thorough evaluation of each candidate’s qualifications and compatibility with the organization’s culture and values. You’re committing as a company in the long term to whoever you’ve decided to hire – so you want to make the right decision if you want to see that role really succeed.

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2. Compensation and benefits

What you’re looking to do here: Offer enticing and fair compensation and benefits packages to attract and keep employees.

Compensation and benefits play a vital role in HCM, as they help attract and retain top talent. Organizations should aim to provide competitive and fair compensation packages that align with industry benchmarks and reflect the value of each employee’s contributions. This includes researching local compensation markets and understanding what employees (and candidates) really value in return for the work they’re doing.

Benefits packages should also cater to the needs of employees and their immediate families, encompassing healthcare, retirement, and other perks. The options for benefits are practically limitless, and you can absolutely be creative here. The key is what attracts and retains your stars.

3. Performance management

What you’re looking to do here: Set clear expectations and goals, giving regular feedback and coaching, and assessing performance to drive constant improvement.

Performance management is another pivotal aspect of HCM, involving the setting of clear expectations and goals, regular feedback and coaching, and performance evaluation to drive ongoing improvement. When employees know how they’re doing and what they’re expected to do, and can see the results of their work, they’ll perform better.

Effective performance management strategies entail setting SMART (specific, measurable, achievable, relevant, and time-bound) goals, providing consistent feedback and coaching, and carrying out periodic performance evaluations.

4. Learning and development

What you’re looking to do here: Invest in employee training and development to enhance skills and knowledge and promote career growth.

Learning and development are also indispensable components of HCM, as they involve investing in employee training and development to enhance skills and knowledge and promote career growth. It’s actually growing in importance for many jobseekers – and should be a cornerstone of your HCM strategy especially as businesses become more agile in fast-evolving environments.

Successful learning and development strategies involve identifying employee development needs, crafting targeted training programs, and offering opportunities for continuous learning and skill-building.

5. Succession planning

What you’re looking to do here: Spot and groom future leaders while ensuring continuity of key roles and responsibilities.

Succession planning is the final key ingredient of HCM, involving the identification and development of future leaders and ensuring continuity of critical roles and responsibilities.

Effective succession planning strategies entail pinpointing vital roles and competencies, designing targeted development programs for high-potential employees, and ensuring that key roles are filled by qualified and capable leaders. When you get stuck in a situation where your best workers turn out to be poor managers (the Peter Principle, in short), that means you haven’t got your succession planning strategy really nailed down.

By integrating these key components into a comprehensive approach to HCM, organizations can create a culture of excellence and continuous improvement that drives organizational success and growth.

Harnessing technology in human capital management

Clearly, in what we’ll call the “age of AI”, technology is a must in any form of management, and HCM is no exception. Here are three ways in which technology helps you manage human capital:

1. HR software and tools

Technology can be a great enabler of HCM. HR software and tools can help automate manual processes, streamline data management, and improve communication and collaboration.

Cloud-based HR systems can provide centralized access to employee data, making it easier to manage performance, compensation, and benefits. They can also enable employees to complete administrative tasks, such as requesting time off, updating personal information, and accessing training materials, through self-service portals.

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2. Data-driven decision making

Data analytics can provide valuable insights into employee performance, engagement, and satisfaction. By leveraging data, organizations can make informed decisions about workforce planning, training and development, and compensation and benefits.

They can also identify trends and patterns in employee behavior, such as turnover rates, and develop targeted strategies to address issues and improve outcomes.

Related: 10 formulas to help calculate the ROI of HR initiatives

3. Remote work and virtual collaboration

Remote work and virtual collaboration are now staples in the post-COVID work world. Embracing these approaches can help organizations attract and retain talent, while also enabling employees to achieve work-life balance and reduce commuting times.

To make remote work and virtual collaboration effective, organizations need to provide the necessary tools and resources, such as laptops, internet access, and video conferencing software. They also need to establish clear communication protocols and set expectations around responsiveness and availability.

AI is a common denominator in all these. The proliferation of AI tools out there means there’s no limit to the technology you can use and how much it can support you in your work – not simply in automating tasks but also helping you gain valuable insight in areas such as people analytics.

Measuring the impact of human capital management

Finally, your work does not happen in a vacuum. And you aren’t just doing this work for work’s sake. You need to deliver – and you need to show results. There are points where you need to sit down and look at tangible, measurable data points so you can identify areas in need of improvement and areas in which you are succeeding, so you can continue to improve your human capital management strategy.

(And, of course, you’ll have an opportunity to showcase your value as a human capital ‘manager’ to the higher-ups – always a good thing!).

Let’s look at some areas where you can measure outcomes:

1. KPIs

Measuring the effectiveness of HCM practices is essential to ensure optimal results. Key performance indicators (KPIs) can help organizations track progress and identify areas for improvement.

Some common KPIs for HCM include:

  • Employee turnover rate
  • Employee satisfaction and engagement levels
  • Training and development participation rates
  • Time-to-hire and time-to-fill metrics
  • Revenue per employee

2. Employee satisfaction and retention

Surveys and assessments can provide valuable insight into employee satisfaction and retention rates. By collecting feedback from employees, organizations can identify areas that need improvement and take action to address issues and promote engagement and retention.

Assessments can also measure the effectiveness of specific training programs and provide feedback to trainers and HR leaders on how to improve.

3. ROI

Finally, it’s essential to evaluate the return on investment (ROI) of HCM practices themselves. By measuring the impact of investments in employee development, compensation, and benefits, organizations can make informed decisions about where to allocate resources and prioritize initiatives.

ROI calculations can be complex, but they provide a valuable tool for measuring the effectiveness of HCM practices and identifying areas for improvement.

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Max out your HCM – and your business potential

You don’t just hire people, put them in their work stations and hope to see them succeed. Beyond that is an area that requires higher-level strategy, and that’s human capital management.

It’s a critical aspect of organizational success. You’re focused on attracting, developing and managing employees towards the company’s north star which usually involves innovation, growth, discovery, and results.

And again, that stuff doesn’t happen on its own. You manage all that capital with training programs, cultural establishment, technology usage, and so on.

Follow the quick guidelines above and your organization will be well on its way to unlocking the full potential of its human capital and achieving long-term success.

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