An organisation’s most valuable resource is its workforce, also known as human resources (HR). The skills, knowledge, and experience that employees accumulate over their work lives are referred to as human capital.
Human capital management is the development and maintenance of intangible assets that are valuable to people. An organisation can increase and maintain these through education, training, and experience.
In this article, we will cover what is human capital management, its core components, and objectives, and how it differs from traditional HR.
Table of Contents
What is Human Capital Management?
Human capital management refers to practices and strategies used by organisations to develop and retain their workforce. Its main aim is to help align individual goals with company objectives. It does this by providing training, compensation, motivation, and promotions. This helps to increase productivity and the contribution of each employee.
Companies need to retain employees because the years of expertise and knowledge they bring to the job cannot be taught in the classroom. It comes from constant practice in a particular job or an industry.
Human capital management helps to build a strong workforce that is the envy of competitors. When employees choose to stay within an organisation for an extended period, it demonstrates that they are growing professionally and personally. It is also an indicator of workplace satisfaction.
When we discuss what is human capital management, it can refer to managing various skill sets to result in a satisfied workforce.
- Technical Skills: These are the technical skills that employees learn in university and at their workplace that are essential to their job profile.
- Soft Skills: Employees gain interpersonal skills that help them collaborate with team members and other departments. These skills are also essential for reaching targets and gaining promotions.
- Organisational Knowledge: This is the working knowledge regarding the current organisation regarding best practices, work culture, and policies.
- Personal Knowledge: This is the knowledge an employee has gained through their education, internships, and work experience. It grows with each promotion and job change and is the expertise they bring to any role.
What are the Core Components of Human Capital Management?
When we examine what is human capital management, we understand that while it is a part of HR, it also includes strategic decision-making. This includes monitoring performance, providing training, sponsoring higher education, etc.
The main role of human capital management is attracting, maintaining, and retaining exceptional talent to help the organisation achieve its annual objectives.
To gain a better understanding of what is human capital management, it is important to take an overview of its core components.
1. Talent Acquisition
- Attract and hire the right talent to meet organisational needs
- Hire employees whose work ethics and experience match what the organisation is searching for
- Hire employees whose skill sets will help meet company objectives
2. Onboarding and Training
- Ensure a smooth transition for new employees
- This includes orientation to company culture and practices, as well as introducing them around.
3. Performance Management
- Set goals, provide feedback, and monitor progress
- Help address any gaps in skills or performance
- Provide training in new software
4. Compensation and Benefits
- Offer competitive salaries to attract top talent
- Include benefits such as daycare, health insurance, paid maternity and paternity leave, etc
- Include end-of-year bonus and structured salary increment
5. Employee Engagement
- Create a positive work environment
- Appreciate and reward employees for achievements, work culture, etc
- Include activities that help increase employee satisfaction
6. Succession Planning
- Train employees to become leaders within the organisation
- Focus on long-term employee retention to avoid leadership gaps
What are the Key Objectives of Human Capital Management?
When an organisation attracts top talent, it helps motivate employees and increase productivity. It also improves a company’s reputation, increasing satisfaction among current employees.
By practising its core components, human capital management fulfils its objectives. While the main objective is achieving organisational strategy, it is only possible if employees meet their potential and when personal goals help contribute towards productivity.
To gain a clearer understanding of what is human capital management, let us review its main objectives.
1. Maximising Employee Potential
- Help employees reach their full potential
- Provide training sessions in new technologies
2. Aligning Workforce Goals with Organisational Strategy
- Individual goals should contribute to company objectives
- Possible when employees feel appreciated and satisfied
3. Enhancing Productivity and Innovation
- Create an environment where employees have the freedom to innovate
- This can be experimenting with a new process or software that could increase productivity
4. Building a Resilient Workforce
Assemble a team that can help power a company through economic instability
What are the Benefits of Effective HCM?
It might seem that the main goal of human capital management is to increase productivity and achieve organisational success. However, when we study what is human capital management, we can understand that to achieve these targets, the company’s workforce needs to be appreciated and satisfied.
Therefore, efficient human capital management practices benefit both employees and organisations. Constant training that leads to a well-compensated promotion helps employees grow professionally, which leads to employee satisfaction.
When employees are happy, they are more productive, are more likely to stay with the organisation and grow into leadership roles.
- Organisations
- Increased profitability
- reduced turnover
- Increased adaptability to change
- Remove gaps in leadership
- Increased productivity
- Strong company culture
- Employees
- Clear career growth opportunities
- Competitive compensation
- Feel appreciated
- Freedom to innovate
- Skill development
- Job satisfaction
Human Capital Management vs. Traditional HR
Human capital management falls under HR, but it takes a more strategic outlook towards employees and their relation to company growth. While traditional HR concentrates on hiring employees, payroll, personal leaves etc. On the other than, when we define what is human capital management, it focuses on employee growth and goals and how it can help an organisation in the long run.
Some functions of human capital management overlap with traditional HR, such as talent acquisition. Overall, they help to optimise an organisation and consciously work towards retaining employees.
The table below identifies what is capital management and how it differs from traditional HR.
| Aspect | Human Capital Management | Traditional HR |
| Focus | Strategic management of employee goals and how they align with organisational objectives | Administrative tasks |
| Approach | Long-term, which helps organisations achieve their targets | Dealing with day-to-day tasks |
| Employee Development | Focus on skill development and training that can lead to promotions | Skill training for the current role |
| Talent Management | The approach is to attract, develop, and retain talent | Less focus on long-term growth |
| Data | Performance and productivity analysis is data-driven | Less focus on data when analysing performance |
| Succession Planning | Identifies and helps mould future leaders | Not as strategic |
| Employee Well Being | Strong focus on employee health, work-life balance, and satisfied employees | Less emphasis on employee satisfaction and well-being |
Read more on Human Resource Practices in Diverse Workplaces
Technological Integration in HCM
To effectively practice human capital management, organisations need to invest in technology that can help them automate and streamline HR processes. It can also allow HR to store and analyse performance metrics, provide resources, and manage training and development.
Technological integration can help HR save time on administrative tasks and instead focus on strategic decision-making, which leads to satisfied employees and higher productivity.
Some benefits of technological integration include;
- Streamlines processes
- Analytics track performance and skills gap
- Helps HR workplace trends
- Easily manage employee training and progress
- Improve HR strategy
- Ensure compliance with labour laws
- Automated employee feedback
- Enhances recruitment
What is the Relevance of HCM in South Africa?
Human capital management is critical for businesses and the overall economy of South Africa. Implementing human capital management helps organisations attract top talent. However, they need to continue human capital management in compensation, appraisals, employee health, etc, to help retain the talent.
When employees are compensated for their work, appreciated for their skills, and motivated to work, this prevents brain drain. This term refers to a city or a country losing skilled and knowledgeable workers because of better opportunities elsewhere.
This practice is highly relevant in South Africa as it helps to address several issues.
1. Skills
- Helps to mange and train a skilled workforce that can meet industry demands.
- Workplace education and upskilling can help fill the gap.
- Mentorship and graduate programmes can help attract talent.
2. Diversity
- Fosters inclusivity in the workplace
- Promotes participation of previously disadvantaged communities
3. Labor Laws
- Ensures fair workplace practices
- Fast and efficient conflict resolution systems
4. Competition
- Allows companies to attract top local and international talent
- It makes it possible to train future leaders who can overcome challenges
How to Study Human Capital Management?
Individuals with excellent people skills who enjoy working with and helping people should choose a career in HR. The first step to becoming an effective HR professional who practices human capital management is to enrol in a top-rated Bachelor of Business Administration (BBA).
Regenesys Business School offers this as a three-year accredited undergraduate programme. In addition to studying core subjects, which include Human Resource Management, students can also study the topics as an advanced elective.
While enrolled in the undergraduate programme, students should complete internships or work on projects where they can apply theoretical knowledge and gain practical knowledge.
As graduates gain professional experience, they can apply for the Master of Business Administration (MBA) or a Postgraduate Diploma in Business Management.
In addition to degrees, professionals can enrol in short courses and certifications that will help train them in HR software or introduce them to new developments in the field.
Conclusion
The company’s most important resource is its employees, who must consciously take steps to help retain them. This can be achieved through human capital management. When we discuss what is human capital management, it involves the development of employees and helping match their goals to organisational objectives.
Several software and applications are available to help HR professionals recruit and manage talent more easily and efficiently. These applications also allow companies to use data to track performance, manage training and development, and ensure compliance.
Students interested in a career in HR should check out Regenesys for a variety of accredited undergraduate and postgraduate programmes.
What is Human Capital Management? – FAQs
What is Human Capital Management (HCM)?
Human Capital Management refers to the practices and strategies organisations use to recruit, develop, retain, and optimise their workforce. Their goal is to align individual goals with organisational objectives.
How is HCM different from traditional Human Resources (HR)?
Traditional HR primarily focuses on administrative tasks such as hiring, payroll, and compliance. In contrast, HCM is more strategic, focusing on long-term employee development, talent management, and performance tracking.
Why is human capital management important?
It is important because it helps increase productivity, profitability, and employee satisfaction and creates a strong company culture.
What are the elements of human capital management?
The main elements of human capital management include talent acquisition, onboarding and training, performance management, compensation and benefits, employee engagement, and succession planning.
How does human capital management help employees?
It offers employees a clear career path, competitive salaries, and continuous training.
