Human Capital Management (HCM): Invest in Your People to Drive Organizational Success
The greatest asset any organization can possess is its people. This concept was recognized by Dan Price, CEO of credit card processing company Gravity Payments. He made headlines in 2015 when he set a minimum annual salary of $70,000 per employee. Price took a pay cut from his previous $1 million salary to fund the raises for his employees. While many believed this move would bankrupt the business, instead it:
- Increased productivity by 30-40%
- Hit an employee retention rate of 91% (the industry average is 68%)
- Boosted customer retention from 91 to 95%
- Doubled company profits
Price invested in his people to produce fantastic business outcomes, and the company is still going strong today. This guide explores human capital management in more detail, including what it includes, its challenges, and how to use an HCM solution to drive your business forward.
What is human capital management?
Human capital management is a strategic approach to managing employees that recognizes them as important company assets. Rather than viewing workers as expendable, HCM identifies the economic value each individual employee brings to the organization in terms of skills, experience, personal connections, and cultural beliefs.
There's a degree of overlap between human capital management and talent management. For example, talent management ensures an organization has the right people in the right roles at the right time. While human capital management shares this goal, it also extends beyond talent management to include employee onboarding, career development, retention, and every other aspect of the entire employee lifecycle.
What does human capital management include?
Human capital management's tasks, business processes, resources, and goals typically fall into three distinct buckets. Here's an overview of each:
Workforce acquisition
Selecting the best of the best to join your organization is the first step in investing in your people. Workforce acquisition refers to all the planning and activities involved in finding new employees, from recruiting to onboarding. Tasks include:
- Identifying talent needs based on current open vacancies or plans to create new roles to meet demand
- Developing an attractive employer brand that appeals to job seekers and current employees
- Crafting compelling job descriptions that accurately sell the role, your company, and its values to prospective employees
- Actively sourcing candidates by posting on a diverse range of job boards, using employee referrals, and headhunting candidates on LinkedIn or similar
- Conducting skills assessments to identify the most suitable candidates for your roles and reduce bias from your hiring processes
- Shortlisting and holding structured interviews that use the same set of questions for each interviewee
- Making job offers and integrating new hires into the company from day one
Workforce management
Once your employees are in place, keeping them happy, engaged, and productive is important. Workforce management tasks include:
- Implementing regular employee surveys to understand the entire workforce's morale and job-satisfaction levels
- Developing a comprehensive compensation and benefits strategy that aligns with industry standards and motivates employees
- Ensuring compliance with all relevant employment laws and regulations to protect the organization and its employees
- Promoting diversity and inclusion initiatives, such as Employee Resource Groups, that create a welcoming and respectful work environment for all employees
- Holding stay interviews to understand why employees choose to stay with the company and what can be improved upon
Workforce optimization
For your people to be truly regarded as "capital," HR professionals must continuously optimize their workforce by providing an environment in which their people can thrive. Workforce optimization includes:
- Providing continuous growth and leadership development opportunities to empower employees with new skills and knowledge. This includes creating personal development plans and offering access to online courses, workshops, job shadowing, mentoring, conferences, and networking opportunities.
- Implementing performance management systems using multi-source feedback to appraise performance and guide employees toward future business objectives.
- Establishing a robust succession planning process to ensure the organization is prepared for future leadership needs. Some high-potential employees will be earmarked for leadership roles, ensuring a smooth transition and continuity in critical positions.
- Leveraging data analytics for strategic decision-making by analyzing workforce data to identify trends, predict future needs, and make informed hiring, development, and retention decisions
What are the challenges of human capital management?
Your human capital priorities can be as broad and complex as the people you’re trying to manage. Some common challenges crop up when we consider HCM:
Attracting and retaining top talent
Two in five workers plan to actively look for a new role in 2024; the challenge for HR professionals is recruiting the most appropriate people for their open roles and then implementing strategies to retain them.
While an attractive compensation and benefits package can be persuasive, return-to-office mandates may cause problems with your recruitment and retention efforts. 90% of professionals report their employer wants them back in the office; only 8% want to be there more than their managers, and many would consider quitting rather than leaving their home offices. 72% of professionals also claimed they would accept a job with a lower salary if they could retain their remote-working flexibility.
Keeping up with the changing talent acquisition landscape
As workplace AI usage gains pace, the way that companies recruit new employees has radically changed. Hiring teams now use artificial intelligence for some of the heavy lifting related to:
- Generating job descriptions
- Automating job ad publishing across multiple boards
- Deploying chatbots to answer common candidate queries
- Delivering application feedback to candidates
- Screening resumes
- Assessing candidate skills
According to Korn Ferry, over 37% of CEOs and senior leaders expect humans to collaborate with rather than compete against AI in the future. However, the challenge for HR professionals is removing the potential for built-in bias in recruitment. AI algorithms are only as unbiased as the data they're trained on. If the historical data contain biases—intentional or not—AI systems may perpetuate or exacerbate these biases in screening and selection processes.
Another concern is delivering a positive candidate experience that feels human rather than robotic. If job applicants don’t interact with a human recruiter and feel your recruitment process lacks personality, this can repel quality candidates and damage your employer brand.
Offering professional development opportunities
Employees will leave the company if they don't receive the career growth opportunities they crave. But Achievers' Engagement and Retention report confirms that companies don't typically excel in this area. Only 25% of employees report their company stocks senior roles from within, while only 13% feel that people who look and identify like them are promoted internally.
The challenge for employers is creating systems to nurture their human capital, identify their specific skills, and develop them in a way that progresses both the individual and the organization. Employers might lean on traditional courses, mentoring, job shadowing, and conferences, but they must also incorporate digital learning, micro-learning, and gamification trends. Then, once trained, they must provide clear career paths into leadership or specialist roles that enrich their people.
Encouraging high performance
Keeping morale high and workers engaged is a battle in the modern workplace, but one that's worth fighting when you consider the link between engagement and employee performance. Gallup research shows that only 23% of workers feel engaged in their roles, meaning employers must work hard to motivate their teams and create a high-performance culture where every individual thrives.
Google's Project Aristotle conducted 200 interviews with Google employees across 180 teams. They concluded that the two behaviors required to create a high-performance environment were equality in team conversations and high social sensitivity. In basic terms, this means giving all employees a voice in team discussions and believing that those around them will value their contributions.
Future-proofing your human capital
Now that the world is alert to the impact of artificial intelligence, HR professionals must learn how to develop their people to maximize the technology's potential rather than risk being replaced by it. LinkedIn's Workplace Learning Report finds that 4 in 5 people are keen to learn more about how to use AI in their profession. AI adoption is still in its early days but is advancing at an unprecedented pace. HR professionals must anticipate the skills and capabilities needed to work alongside AI and ensure that their human capital is equipped for the responsibilities of tomorrow.
What are the key benefits of using an HCM solution?
Human capital management software exists to make life easier for HR professionals. Instead of chasing vague ideas and grappling with paper-based processes and spreadsheets, technology keeps everything documented and accessible to unleash benefits that include:
Streamlining HR processes for operational efficiency
Cloud HCM solutions automate time-consuming tasks, reducing the burden of manual labor and minimizing human errors.
Case study: UTEC, a non-profit organization, was experiencing integration problems between its payroll and timekeeping solutions. This operational headache resulted in data-entry errors, hours spent on employee record reconciliations, and undefined workforce management processes. UTEC switched to UKG Ready to create smooth HR workflows, improve payroll processing, and integrate all core HR functions. The transition has resulted in more time for HR to spend on strategic tasks.
Improving employee experience and engagement
HCM technology empowers employees with self-service capabilities to request time off, update personal information, and access pay stubs. This improves the employee experience and overall engagement by giving them more control over their work life.
Case study: Healthcare services provider Baton Rouge General had been struggling to capture workforce data using an assortment of manual methods and 14 plug-ins that didn’t sync correctly. By switching to UKG, BRG has skyrocketed engagement by empowering employees with self-scheduling features that complement their work-life balance.
Reducing compliance risks
All-in-one solutions for human capital management come with built-in compliance features, enabling you to stay abreast of local, state, and federal labor laws. These tools reduce the risk of costly fines due to non-compliance and minimize human error when handling sensitive employee information.
Case study: Rockingham County has 600+ employees spread across a range of departments and belonging to seven different unions. As such, the organization must handle a complex set of bargaining agreements with a variety of work and pay rules. Since moving to UKG, the organization has automated its workforce management processes, enabling Rockingham County to better control labor costs, track employee time, and mitigate compliance risks.
Gaining real-time workforce insights
Real-time visibility into your workforce enables HR professionals to make informed decisions related to staffing levels, workforce productivity, and turnover. These insights allow HR to act swiftly to address issues before they escalate, ensuring the workforce remains aligned with organizational goals.
Case study: Restaurant chain Boba Tea Company employs 175 people across 14 locations in Texas, New Mexico, and Arizona. The company struggled with consistently communicating with frontline staff. By deploying the UKG Ready mobile app, the company can better understand how many people to schedule at each location based on projected sales. This more efficient staffing has resulted in a 23% sales increase and a better customer experience.
What to look for in a human capital management system
The right HCM tool should align with your business strategy and company size. Consider the following pointers when researching different platforms in the market: Features and functionality Each human capital management platform will offer specific administrative functions that may suit your business goals. While these will differ from system to system but may include features such as:
- Recruitment and onboarding
- Performance management
- Employee learning management
- Compensation planning and benefits management
- Time tracking, attendance, and absence management
- Payroll processing
- Analytics and reporting
It's important to clearly understand your HR processes and needs so you can choose a system that offers the right features for your organization. Don't be swayed by flashy or unnecessary features that may not align with your goals.
Integration capabilities
An HCM system that integrates with other tools and systems, such as your payroll provider or human resources management system, ensures seamless data transfer and reduces the risk of errors or duplicate entries.
Once connected, HR professionals can set up simple automation recipes based on trigger actions, enabling them to focus on high-value tasks rather than repetitive data entry. For example, you might set up a recipe to automatically add new employee data from your HCM's recruitment component to your payroll provider as soon as they are hired.
User-friendly interface
Busy HR professionals don't have the time to navigate a steep learning curve. A cluttered or confusing interface can lead to frustration, mistakes, and a lack of adoption, ultimately defeating the purpose of investing in an HCM solution. Overcome this by selecting an HCM with a user-friendly interface that allows for easy navigation and requires minimal training. This will improve employee adoption rates and engagement with the system's features.
Advanced analytics and reporting tools
Data is critical to any human resources function. An HCM system provides access to real-time data on your workforce and key metrics such as time and attendance, turnover rates, and performance evaluations. Look for a platform that offers advanced analytics and reporting tools to help you make data-driven decisions about your workforce and identify areas for improvement. These insights will help you make better decisions and justify investment in your HCM system to upper management.
Cost
HCM solutions may be priced differently across vendors. Some popular pricing strategies include:
- Per employee per month
- Flat rate for a certain number of employees
- One-time fee with ongoing support costs
It's essential to evaluate the cost of an HCM system in relation to your organization's size and budget. Consider any integration or implementation fees, as well as long-term maintenance and support costs. Additionally, think about the potential return on investment (ROI) for your organization, such as increased productivity, reduced compliance risks, and improved employee engagement. A higher initial cost may be worthwhile if it leads to long-term benefits for your organization.
Employee self-service
Empowering employees to take control of their HR needs can save time and resources for your HR team. Look for an HCM system that offers employee self-service features, such as self-scheduling, time-off requests, and access to pay stubs and benefits information. These features benefit employees by giving them more control over their schedules and reducing the administrative burden on HR.
Accessibility
Having an HCM system that employees can access from anywhere is crucial. Look for a platform that offers mobile-friendly options and cloud-based storage so your workforce can easily access their information and complete tasks anytime and anywhere. This also allows HR professionals to manage tasks on the go, providing flexibility and efficiency in their roles.
How to choose an HCM solution
Part of your vendor research process should be working through a list of questions to narrow down the most suitable HCM platform for your business.
- Are there customer success stories available to share? Case studies of companies similar to yours in size, industry, or workforce challenges can provide insights into how the HCM solution addressed specific needs and the results it achieved.
- Can the vendor provide references? Speaking directly to current clients provides unfiltered feedback on their experience with the software and the vendor.
- How do software review platforms rate the HCM? Visit G2, Capterra, TrustRadius, or similar to read user feedback. Pay attention to comments about usability, functionality, and any issues users have encountered that are relevant to your organization.
- Is the HCM future-proof? Ensure the HCM solution can adapt to your changing business needs, workforce dynamics, and technological advancements.
- Is the platform scalable? If your headcount changes or your business experiences rapid growth, can your software systems scale up or down as your organization changes focus?
- Does the HCM include customizable features? Check if you can adapt the solution to meet your specific needs and if these adjustments are cost-effective.
- Does the vendor offer a free trial? If so, understand what features and functionality you'll be able to test how long you'll have access to the platform for.
- Is quality customer support available? Understand the levels of support offered. Is it 24/7, or are there specific hours? What channels are available (email, phone, chat)? Inquire about average response times for support requests and resolution times for common issues.
- What type of training or onboarding is available? Check if the vendor provides comprehensive employee training and resources enabling your HR teams to get up to speed quickly.
Optimize your human capital management with UKG
UKG offers two comprehensive solutions to handle human capital initiatives in modern businesses of any size, type, or complexity. Choose from:
- UKG Ready, which supports leaner teams from small to mid-sized organizations. This slimline platform provides a consistent user experience, offering built-in features for talent management, payroll, and time tracking.
- UKG Pro, which is designed to drive human capital excellence in your enterprise organization. Our strategic solution manages personnel data, complex payroll tasks, scheduling, and workforce planning from a single, centralized location.
Take a free UKG product tour today, or contact one of our HCM specialists for expert guidance.
