Edu BlogJuly 11, 2022

What is human capital management?

What is human capital management (HCM)?

A company cannot grow without its employees. They are the lifeblood of the organisation and contribute to its success and prosperity. It is not surprising that many companies refer to their employees as human capital because they are an indispensable asset to the business.

Human capital management (HCM), therefore, is a human resources function that involves managing a company’s employees in such a way that they contribute positively to the organisation and enhance its growth. Adding value to employees empowers them to perform at their best and positively impact the organisation’s bottom line.

Why is human capital management important?

Gone are the days when HCM was performed as primarily an administrative function. Today’s leading businesses fully acknowledge the critical role HCM plays in enhancing business value.

The HCM department is specifically tasked with ensuring that staff are inspired, rewarded and engaged. Becoming the caring employer that their employees love will help the organisation achieve and more importantly, retain competitive advantage. On the other hand, businesses that fail to anticipate, understand and fulfil their employees’ needs will struggle to achieve success.

To execute HCM effectively employees must be managed across the entire employee lifecycle. This includes recruitment and selection, onboarding, employee development, retention, performance management and finally, exit.

Let’s discuss these components in more detail.


Finding the best people for your business is challenging. Hiring the wrong person for a particular role will negatively impact the company over the long term.

Human capital management not only ensures that the right talent is attracted to the business, but that their competencies and strengths are identified. This enables them to be matched to positions where they can use their skills and talents to the best of their ability and deliver optimal results.


Onboarding is vital to building a successful long-term relationship with a new employee. Employees who are made to feel an integral part of the business during a positive onboarding process are likely to make a valuable and long-lasting contribution to the organisation.

Providing a desk, laptop, stationary and so on for relevant appointments are not nice-to-haves but essential tools for the job. A negative onboarding experience can very quickly give a sense of disillusionment and have new staff looking for opportunities elsewhere.

Effective onboarding programmes not only do the fundamentals right, they also clarify the employee’s role in the business, build confidence in the company, and aid in developing relationships with key staff members.

Furthermore, if the onboarding experience is positive, then new appointees are likely to recommend the employer to others. Considering how valuable employee referrals are to identify and attract new talent, the value this offers cannot be underestimated.

Employee development

Human capital management invests in the learning and development of employees so that they can perform at their best. Employees who do not learn new skills from time to time soon become stagnant and demotivated, which affects their productivity. Consequently, career planning has become an essential component of HCM.

Surveys, performance reviews and training are important sources of feedback for gaining insight into existing skills gaps among employees. These can then be addressed through appropriate training programmes.

An investment in employee development not only improves individual skill sets, but also fosters a positive mindset with the employee that the organisation cares about their personal growth and the furtherment of their career.

Employee retention

The cost of employee turnover is extremely high. According to Gallup, the cost of replacing an employee can range from as much as one-half to two times the employee’s annual salary. Then there are also operational costs, loss of revenue and productivity, as well as the impact on company culture and customer experience to consider.

Companies that focus on retaining the employees they have recruited, onboarded and trained experience a significant return on their investment in the form of increased sales, enhanced productivity and improved quality of work. Additionally, morale is high because the employees are happy and motivated.

Performance management

Essentially, performance management is all about ongoing employee development and the establishment of clear goals that they work to achieve. Consistent feedback is also important to ensure that employees remained aligned to these goals.

When management creates an environment in which company objectives are aligned with individual and team goals in the organisation, both the employees and the company thrive.

This is in line with research done by Gallup which reveals that “when organisations successfully engage their customers and their employees, they experience a 240% boost in performance-related business outcomes compared with an organisation with neither engaged employees nor engaged customers.”

How can you improve Human capital management (HCM) in your company?

An investment in an integrated human resources technology solution that empowers the HCM department through intelligence can go a long way towards improving efficiencies in the organisation. The system should deliver a framework that provides a different engagement strategy for each stage of the employee lifecycle, from recruitment through to exit.

Additionally, the system should be specifically geared to simplifying administration while generating meaningful information and data-to-dashboard reporting for decision-making.

When all the information the HCM department needs is quickly and easily accessible through a simple click of a button, fewer errors occur, compliance risks are alleviated and policies are enforced effectively.

Utilising technology to automate and streamline human capital management processes can enhance performance management while reducing costs, boosting revenue and increasing return on investment.


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