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4 Ways to Improve Human Capital Management

Updated Feb 21, 2023

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Human resources departments play a complex and dynamic role in businesses, but their primary responsibility is what’s known as “human capital management” (HCM). This can seem like a vague concept, but as a small business owner, it’s important to understand.

What is human capital management?

Human capital management is a term for managing people. According to Gartner, HCM is a “set of practices related to people resource management,” specifically in the categories of workforce acquisition, management and optimization. HCM is applicable to any organization, but it’s especially important for companies with “knowledge workers,” where the business’s most critical asset is its people.

“People-related costs, including compensation and benefits … are now the single largest budget items for most companies, which means HR has shifted to a more strategic, integrated role in fulfilling the overall organization’s strategy and goals,” said Krista Skidmore, co-founder of FlashPoint.

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Why is human capital management important?

HCM is one of the most important aspects of your business. If you can’t understand your employees, their needs and how they impact your business, your company will struggle to grow. One factor that makes companies great is the employees; HCM is a department that ensures workers are happy, prepared, and ready to tackle challenges that come their way.

Not every small business can build out an in-house HCM department. There are steps small business owners can take, though, to create a workforce comprising happy, productive employees.

We spoke to HR experts who shared their insights for companies looking to provide the best human capital management for their workforce. [See related story: Supply and Demand, Marketing, Design: HR’s New Role]

4 tips for improving human capital management at your company

1. Look beyond recruiting and onboarding.

When it comes to talent management, some companies are so focused on hiring new people that they ignore the ones they already have. Smart HR professionals know that employee engagement must extend beyond recruiting and onboarding.

“Keeping employees happy and engaged in your company now depends very heavily on how you approach the entire employee life cycle,” said Sanjay Sathe, president and CEO of GenomeSmart. Sathe recommends asking yourself if your employee recognition, review and learning processes engage workers, and if your offboarding process matches your onboarding process.

Deb Cupp, corporate vice president of enterprise and commercial industries at Microsoft, said that you should focus on each individual’s ability to progress, considering their long-term options.

“Instead of focusing on the top performers, think of everyone as talent,” Cupp said.

2. Learn how to connect with each employee.

It’s important to take a personalized approach to the day-to-day management of employees. Melissa Moore, senior vice president and chief people officer at enterprise behavioral analytics company Mattersight, advised taking employees’ personalities and preferences into account when managing and communicating with them.

Moore also recommended learning how an employee is “wired” so you, as their boss or manager, can cater to their needs as a worker. For instance, some employees may need more frequent check-ins and a more personal relationship than other workers.

Leadership development and employee engagement, said Skidmore, are “ongoing processes designed to be strategic, sustainable and measurable,” and there is no one-size-fits-all solution for managers. Initiatives and programs should be evaluated to provide personalized and effective results for workers, Skidmore added.

3. Invest in the right technology.

To make your HCM processes as efficient and helpful as possible, it’s critical to implement the right tech tools for your company, said Claire Bissot, a certified senior professional of human resources (SPHR) and managing director of human resources at business services provider CBIZ.

“HR professionals [should] begin investing their time to build automated processes, utilizing technology so that they can begin to get out from behind the desk piled with paper and get out to get to know the people,” said Bissot.

4. Take a positive and transparent approach to communication.

All companies must deal with changes and transitions that affect their employees. Business owners should strive to openly communicate with employees not only during transitional periods but all the time.

“Change is scary for everyone, and the unknown causes fear,” Moore said. “Communicate not only what is happening [in this situation], but also the day to day. Have open communication as much as possible so people know what’s going on, whether it’s relevant or not.”

Sathe agreed, adding that situations like layoffs or budget cuts should be reframed in a constructive way when they’re communicated to employees.

For example, offering outplacement services can provide tangible support to employees whose roles have been affected, said Sathe. This not only helps those employees move into new roles, but it also sends a message to remaining staff members that the company and the owner have their interests in mind.

“During times of transition, it’s our job to provide … hope for the future, instead of creating situations that allow employees – both impacted and remaining – to dwell on the past,” Sathe said.

What are the key functions of a human capital management system?

While the four tips above are great opportunities to improve your existing system, it’s also worth considering the typical key functions of HCM. That way, you can learn about new ways to expand your HCM system or understand existing strategies that you may not have implemented in your current system.

Here are four key functions of an HCM system:

  • Hiring/termination: Those in charge of managing human capital should oversee all hiring and firing, as well as onboarding. They should control the flow of people in and out of an organization based on your business’s needs. This also extends to freelance and contract-based opportunities.

  • Training: New employees need to be trained, and existing employees transitioning to new roles need help adjusting. HCM team members should focus on making sure everyone in your organization is prepared for the task at hand.

  • Employee retention: Hiring great people is difficult, and keeping them happy can be a challenge. HCM should focus on nurturing talent, retaining top performers and investing in the next generation of company culture.

  • Morale: It’s important for HCM team members to understand how employees are feeling and communicate that to business leaders. If your business is entering a difficult time, or is facing troubling economic times, it’s more important than ever for HCM teams to focus on creating the right narratives around what’s occurring.

Additional reporting by Nicole Fallon and Sammi Caramela. Some source interviews were conducted for a previous version of this article.

Matt D'Angelo
Contributing Writer at
Matt has worked for newspapers, magazines and various online platforms as both a writer and copy editor. He covers various small business topics, including technology, financing and marketing on and Business News Daily.
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