Human capital management definition

Human capital management (HCM) is another name for human resources (HR) and is a set of practices, tools, and systems for managing an organization's workforce to maximize employee value and achieve business goals. It includes both administrative functions like payroll, time tracking and benefits, and strategic activities like talent acquisition, learning, onboarding, performance management, and talent development to boost productivity and employee engagement.

HCM software refers to the systems and solutions used to optimize these tasks in support of organizational goals, and is often referred to as human resources management systems (HRMS).

Why human capital management is important

Amid growing change and innovation, core priorities of HCM remain the same, including recruitment, onboarding, training, and payroll. What’s changing fast is the demand for HR departments to drive business innovation by delivering data-driven insights and analytics, and to lead compliance on a global scale.

In the hands of today’s HR teams, modern HCM solutions are revolutionizing the nature of work, how people engage with each other and their jobs, and the way companies are managed. Today’s HR teams can use:

• AI to automate routine tasks and deliver data-based business insights
• Strategic HR tools to connect workforce planning with organizational goals
• Mobile and cloud capabilities to empower collaboration for an untethered workforce

Together, these smart, connected technologies are shaping new possibilities and helping spark innovation.

What are the benefits of using an HCM system?

In the digital age, the importance of talent management and strong HCM strategies can’t be overestimated. Building a future-ready workforce requires more than just attracting and onboarding the right candidates in an efficient way. To combat a shortage of skilled workers in a fiercely competitive landscape, organizations need to take a holistic approach.

Best-in-class HCM software can help you create compelling compensation and benefits packages, up-and re-skill your existing workforce, create an internal talent pool, develop a new generation of leaders, and provide engaging employee experiences that keep everyone invested.

Here are some of the many other benefits of HCM software:

1. Boost productivity: Help everyone work more efficiently with human capital management software that can simplify and automate many HR workflows and processes.
2. Support data-driven decisions: Make faster, evidence-based HR decisions using systems that centralize employee data, automate insights, and offer advanced planning and predictive analytics features.
3. Motivate and engage employees: Keep employees motivated and engaged, which lowers absenteeism and attrition by providing a personalized employee experience and next-generation tools, such as virtual employee assistants.
4. Boost HR compliance with global and local regulations: Keep up with compliance and ever-changing regulations, such as the Employment, Social Affairs & Inclusion Act.

How has HCM evolved?

Over the decades, HCM has undergone a significant transformation, shaped by technological advancements, shifting workforce dynamics, and evolving employee expectations. Here's a brief overview of how HCM has evolved:

1960s

• “Human capital” coined to highlight the value of employee skills
• Introduction of fair employment regulations
• Growing focus on employee well-being and satisfaction

Internet era

• The rise of early HCM systems to manage increasing workplace complexity
• Faster information sharing became essential

Today

• HR faces greater demands due to a diverse, distributed workforce
• Employee experience is key to recruitment and retention
• HR is embracing innovation to meet evolving workforce expectations

Modern solutions

• Advanced, AI-enabled HCM tools are now critical
• HCM systems unify teams, analyze complex data, and streamline HR operations

Human capital management (HCM) vs HRMS

An HCM system is a suite of technological and software tools that supports HR business practices and management strategy; it’s often referred to as a human resources management system (HRMS). HCM and HRMS systems each include human resources information system (HRIS) software, which supports and automates core HR processes. These include benefits administration, time and attendance, payroll, and other workflows, and the management and storage of employee data.

An HRMS contains all the functionality of the HRIS, plus additional talent management and learning capabilities, smart technologies, and advanced analytics to add an increasingly strategic component to HCM operations.

Explore key components and functions of HCM software

HCM, as an umbrella term, comprises a broad range of essential HR activities, not all of which are digital. However, as the capabilities, agility, and ease of use of modern HR software increases, HR teams become increasingly reliant on integrated HCM systems to keep their operations running smoothly.

• AI for human resources: Modern HR solutions that enhance HR operations, delivering intelligent recommendations and predictive insights that help HR teams work more efficiently, improve engagement and outcomes, and enable faster, more strategic workforce planning.
• Core HR and payroll: Capabilities for core HCM that support all the administrative functions needed to manage the day-to-day—from employee data, payroll, and benefits to essential services. Integrated cloud-based HCM systems with a mobile-first approach streamline these processes. Use HRIS software to support core HR processes like self-service, real-time access to a single source of HR data, compliance with data privacy mandates, and more.
• Talent management: Processes that support every stage of the employee journey from recruiting and onboarding, compensation, and performance management to learning and development, and succession planning—everything you need to hire and retain skilled employees who are critical to business success. Integrated and automated talent management tools help ensure employees are engaged, growing, and ready to meet evolving business needs.
• Workforce management: Tools that help you plan, schedule, and manage your workforce more effectively so you can adapt to changing business demands. Workforce management solutions empower HR and operations teams to make informed decisions by providing real-time visibility into staffing levels, labor costs, and compliance risks. Automated workflows and mobile access empower managers and employees alike, improving productivity and agility across the organization.
• Time tracking: Capabilities for time tracking that support accurate payroll, compliance, and workforce transparency by streamlining time and attendance processes. Enable employees to record time from any device while giving managers visibility into team availability and labor trends. Stay compliant and responsive to workforce needs by automating approvals, alerts, and embedded reporting that simplifies administration and reduces errors.
• Sales performance management: Tools that drive revenue and motivate your sales teams by aligning behaviors with business strategy. Sales performance management tools support planning, real-time performance tracking, and automated incentive compensation. Optimize team structures, reward top performers, and improve forecasting accuracy by connecting sales data with HR insights.

Cloud HCM and the future of HR systems

Most companies—regardless of their size—already use cloud-based HR solutions. This could include time-tracking applications, payroll systems, and a variety of standalone HCM applications. But having multiple, single-purpose applications in the cloud is not the same as having a unified cloud-based suite of solutions.

Standalone applications from specialty vendors can be great for a particular purpose, but they typically don’t talk to each other nor integrate with your core business systems, like an ERP. For example, entries from a time-tracking application can’t be analyzed alongside performance or payroll data. In this case, managers don’t have a unified view of their whole workforce and related activities.

What modern businesses don’t need is a proliferation of one-off specialty applications. What they do need is:

• More time, less inefficiency, and fewer silos
• The ability to see across their entire workforce from a single control tower, access unified data, and customize real-time reporting—anytime, anywhere
• For their employees to feel empowered with self-service tools and their HR teams to be more productive and supported

Cloud HCM solutions are agile and scalable. They integrate seamlessly with the tools you already use, rather than requiring ad hoc integration with a growing number of applications. Cloud HCM supports a unified, centralized HR service with faster and more user-friendly solutions.

HCM and ERP integration: The best of both worlds

ERP systems help manage key business functions including accounting, procurement, supply chain, R&D, and many more. ERPs bring together different processes and data into one unified system, giving organizations a single source of truth for a clear, consistent view of operations.

When you integrate your HCM and ERP systems, you align your HR and business goals more closely, leading to:

• Smarter staffing decisions, especially for seasonal or supply chain needs
• Better insights into employee performance using business data
• An improved ability to predict workforce gaps and respond to changing needs

When choosing your HCM solution, make sure it integrates easily with your ERP. As HR data grows more complex, real-time visibility and accountability across your organization will only become more important.

Learn more about SAP HCM systems

Discover how SAP SuccessFactors HCM software connects your HR processes and competencies throughout the employee lifecycle while helping you find the right-fit solutions for your unique needs. At SAP,  we organize these into six pillars of HCM:

• AI for human resources
• Core HR and payroll
• Talent management
• Workforce management
• Time tracking
• Sales performance management

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