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Updated Feb 15, 2024

6 Ways to Improve Human Capital Management

What is Human Capital Management?

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Matt D'Angelo, Business Operations Insider and Senior Writer
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This guide was reviewed by a Business News Daily editor to ensure it provides comprehensive and accurate information to aid your buying decision.

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Human resources (HR) 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. After all, beyond the HR department, business owners play a large role in HCM as do managers and team leads. Below, learn what HCM is, why it matters and how you can improve it, including with software.

Editor’s note: Looking for a human resources outsourcing for your business? If you’re looking for information to help you choose the one that’s right for you, use the questionnaire below to be contacted by vendors with additional information:

What is human capital management?

Human capital management is a term for managing people that encompasses a range of protocols covering how you manage one of your greatest resources: your people. It includes 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 the specialized information that its team members understand thoroughly in and out.

“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, CEO and founder of FlashPoint.

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.

When you give your employees what they need through HCM, you boost your team’s productivity. You also improve employee retention since your team will be happier and more engaged. A strong HCM strategy may also improve your hiring prospects, eliminate expensive process redundancies and consolidate your company’s knowledge into a single source of truth.

Did You Know?Did you know
A single source of truth is a location within your company’s infrastructure that holds the data from all your systems.

6 tips for improving human capital management at your company

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. [Related story: Strategy, Marketing and More: HR Functions Are Expanding]

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, founder and CEO of SucceedSmart. 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, president of Microsoft Americas, 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, founder of Moore Insights Group, 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, director at Kainos Capital.

“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.

FYIDid you know
The best HR outsourcing companies build automated HR processes on your behalf.

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.

5. Use your business goals to lead your HCM strategy

Suppose you’ve set a quarterly goal to improve your sales on a certain product by 10 percent. A smart HCM strategy around this initiative could be identifying team members who helped design the product and want to learn about sales and marketing. 

Great HCM would then start with training these employees on exactly what about sales and marketing they want to learn. It would continue with putting these employees to work on selling the product. More sales ― and happier employees ― are likely to result.

6. Conduct regular performance reviews

Consistent performance reviews convey to your employees that you’ve set clear benchmarks for their tasks’ success and will be assessing their work accordingly. They also show employees that you’re invested in their continued learning and growth. Plus, during performance review meetings, employees get the chance to offer you constructive feedback as well. Implement your team’s suggested improvements and you’ll have happier employees doing better work.

Additionally, performance reviews are a great time for employees to tell you about their newest areas of interest. Creating pathways to these areas further drives employee engagement while giving your company a more skilled team. Couple these with other types of performance reviews such as self-evaluations and peer reviews and you build the consistent communication that’s core to HCM.

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

While the 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.

The four key functions of an HCM system include: 

  • 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: HCM team members need 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.
Gamifying your workforce to make accomplishing tasks rewarding and fun can drive morale among your team.

The best HR software for human capital management

Many of the best HR software platforms come with useful tools for human capital management. These platforms include:

  • BambooHR: You can easily set and track goals, conduct performance reviews and create a continuous stream of 360-degree feedback with BambooHR. This platform’s employee satisfaction score feature also makes it easier to help your team members feel happier at your organization. Learn more via our BambooHR review.
  • Rippling: Onboarding is especially easy with Rippling’s tools for completing new-hire paperwork and onboarding tasks. This HR platform also comes with device management features through which you can give your team the right tools for success from day one. Read our Rippling HR software review to discover how else this vendor can streamline your HCM.
  • With’s HR software, you can automate your onboarding process using customizable templates, making for better first days among your new employees. Similarly, you can automate and customize employee surveys to continuously check the pulse on how your team members are feeling about their work. Explore what else this vendor offers via our HR software review.
  • Paychex Flex: This vendor offers the ability to create e-learning courses, improving your onboarding for both in-office and remote employees. It’s also easy to store and track employee performance reviews with Paychex Flex and that’s key to strong HCM. Discover the additional features this vendor offers via our Paychex Flex HR software review.
  • Paycor: You can use the employee surveys within Paycor to assess your team’s engagement and happiness with their employee benefits. This platform’s robust analytics suite also excels at identifying solutions to high employee turnover rates and solving this problem is a key goal within HCM. Learn more via our Paycor HR software review.

HCM means being good to people

Although the “capital” in “human capital management” implies that this discipline centers on business improvements, it’s really about making things better for your people. Use HCM to understand what your team needs to succeed and then provide it for them. Sometimes, making your work environment more enjoyable for the people within it leads you right to the business outcomes you’ve been seeking.

Sammi Caramela and Nicole Fallon contributed to this article. Source interviews were conducted for a previous version of this article.

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Matt D'Angelo, Business Operations Insider and Senior Writer
Matt D'Angelo has spent several years reviewing business software products for small businesses, such as GPS fleet management systems. He has also spent significant time evaluating financing solutions, including business loan providers. He has a firm grasp of the business lifecycle and uses his years of research to give business owners actionable insights. With a journalism degree from James Madison University, D'Angelo specializes in distilling complex business topics into easy-to-read guides filled with expertise and practical applications. In addition, D'Angelo has profiled notable small businesses and the people behind them.
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