What is human capital management (HCM)?

What does HCM stand for? HCM is the acronym for human capital management. It is a broad set of practices and applications for recruiting, managing, and developing a company’s human capital – aka their workforce.

As the name implies, HCM software considers people as valuable capital – a strategic asset worthy of investment – rather than merely the cost of doing business. Today, this human resources (HR) software is significantly different than in the past, as it now leverages advanced technologies that offer greater insight and efficiency than ever before.

The benefits of human capital management

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 – though that’s also crucial. To combat a shortage of skilled workers in a fiercely competitive landscape, a holistic approach is needed. 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:

Boost productivity: Human capital management software can simplify and automate many HR workflows and processes to help everyone work more efficiently.
Support data-driven decisions: Systems that centralize employee data, automate insights, and offer advanced planning and predictive analytics features can help you make faster, evidence-based HR decisions.
Motivate and engage employees: By providing a personalized employee experience and next-gen tools, such as virtual employee assistants, you can keep employees motivated and engaged, which lowers absenteeism and attrition.
Boost HR compliance with global and local regulations: HR policies and regulations are always changing. HCM software can help you keep up and comply with regulations, such as the Fair Labor Standards Act (FLSA), Equal Employment Opportunity Commission (EEOC), and the Family Medical Leave Act (FMLA).

A short history of HCM: How the role of HR has evolved

The term “human capital” was coined in the early ’60s to reflect valuable employee skills that could be cultivated to drive business growth. Regulations around fairer employment practices were introduced for the first time, and there was a growing recognition of psychological motivators in the workplace.

Fast-forward to the introduction of the Internet and the growing sophistication of HCM software. Increasingly, companies began to rely on HCM solutions to help them manage employee data, streamline recruiting, ensure fair compensation practices, and more.

Today, the demands placed on HR are greater than ever, with a workforce that looks much different than in the past. The workforce is far more diverse and spans multiple generations, from Generation Z and Millennials to Baby Boomers. There’s also a fast-growing segment of gig workers – and employees can be based anywhere on the planet. Employee expectations have also changed, with employee experience now an essential factor in employee recruitment and retention. HR has had to adapt and digitally transform to better meet their people’s needs.

Advanced technologies are now essential to help HR manage this complexity. These technologies are revolutionizing the nature of work, the way people work together, and the way companies are managed. Artificial intelligence (AI) can now automate routine tasks and offer far greater insight than was available in the past. Virtual reality can be used for rich, immersive training experiences. Blockchain can quickly verify data accuracy and ensure security and compliance. And of course, mobile and cloud capabilities open up new collaboration possibilities and freedom for an untethered workforce. Together, these technologies are shaping new possibilities and helping spark innovation.

Features and functions of human capital management software

Best-in-class HR software integrates processes and competencies throughout the employee lifecycle. At SAP, we organize these into four pillars of HCM: employee experience management, core human resources functions including payroll (typically provided through an HRIS), talent management, and analytics-driven workforce planning.
Employee experience management
Employee experience management seeks to understand why employees feel the way they do about their experiences at work, starting as a candidate to the day they leave and everything in between.

Voice of the employee (VoE) technologies and tools to gather this information include 360 feedback assessments, surveys, behavioral and sentiment analysis, and more. Using these insights, organizations can personalize each employee’s experiences across their lifecycle, boosting engagement and productivity.
Core HR and payroll
Capabilities for core HCM 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. They support self-service, real-time access to a single source of HR data, compliance with data privacy mandates, and more. These core HR processes are supported using HRIS software.

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Talent Management
Processes for managing talent span recruiting and onboarding, compensation and performance management, learning and development, and succession planning – in short, everything needed to hire and retire the skilled employees that are so critical to business success.

Integrated and automated tools make it faster to source and hire global talent through internal and external job postings, two-way communication via mobile devices and chatbots, a streamlined contract process, and candidate tracking and pre-onboarding.

Features that support employee goal setting and tracking as well as ongoing coaching and feedback can help you better evaluate, promote, and compensate top-performing employees.
People analytics and workforce planning
Features in this area support data-driven decisions across all HR processes. They provide metrics and KPIs, reporting, predictive workforce modeling, AI-powered analytics, and more to support strategic and operational planning as well as budgeting and performance management.

HR best practices

Leverage the power of the cloud, AI, social, mobile, and other technologies to put these best HCM practices into place.

Create a pay-for-performance culture where valuable employee contributions are recognized and rewarded.
Build diversity and inclusion directly into your HR processes to combat unconscious bias.
Align your people and organizational strategies organizational and employee goals.
Cater to a multi-generational workforce that spans Generation Z to Baby Boomers with built-in social and mobile tools.

What to look for in HCM software

Here are some of the features and capabilities that are important in HCM systems and tools today:

Mobile workforce management and self-services along with cloud HR processes to make software nimble, user-friendly, and accessible from anywhere, and from any device.
Scalable and future-ready with modular cloud deployment options for easy access to technology innovations.Integration with ERP, CRM, and other business processes as well as operational data.
AI-driven tools that can make intelligent recommendations, from automatically surfacing personalized training options to connecting each employee with the right wellness resources based on their needs.
Learning and development capabilities for sharpening employee skills, completing training certifications, and developing leadership. Look for integrated collaborative social tools, third-party content, virtual reality environments, and automated recommendations to elevate the learner experience.

Global HCM, including support for different currencies and compliance with regulations at a global, federal, and local level.
The ability to collect and analyze employee feedback, sentiment, and behavioral data – and then use it to provide personalized employee experiences.
Embedded intelligent technologies like machine learning and chatbots to provide guidance and automate repetitive, time-consuming tasks.
Cobots and employee chatbots that help teams find information and manage requests using voice commands – for a more compelling, productive employee experience.
Collaborative and responsive processes combined with automation and AI technology to boost organizational agility.
Goal tracking, monitoring, and measurements that can be aligned with strategic organizational goals.

What to look for in an HCM company

When comparing HCM software vendors, here are some questions to ask:

Staying power: How long has the company been providing HR-specific software? How many customers do they have?
Cloud HCM and investment in innovation: Do they offer cloud deployment to help you keep up with the latest innovations? What kind of technologies and tools does their software provide?
Proven track record: Has the HCM vendor been recognized in analyst reports such as the Gartner Magic Quadrant for Cloud HCM Suites, IDC MarketScape for Worldwide and U.S. Modern Talent Acquisition Suites for Large Enterprises, or by customers on the Gartner Peer Insights site?
Data and cybersecurity: Do they have a data center located in your country to meet local data residency requirements? What measures do they use to ensure your sensitive employee data is secure and safe from security breaches?
Partner ecosystem: Do they have an extensive network of partners, API integrations, and third-party apps that work with your chosen software platform? No one vendor can do it all, but strong partnerships can help you deploy faster, customize functionality, and integrate with the tools you use now.
Corporate social responsibility: Do their values and contributions to society align with those of your organization? For example, gender equality, sustainable UN goals, and equal pay for equal work are some of the issues that will transform our world, and our organizations.

HCM and ERP integration: The best of both worlds

HCM/ERP integration allows these two powerful enterprise software systems to synchronize and connect in the cloud. ERP systems manage a wide range of day-to-day business activities including accounting, procurement, supply chain, and many more. ERP systems are built to integrate a multitude of business processes and strengthen the flow of data between them. By unifying cross-business data, ERPs provide a single source of truth and ensure reliable data integrity. When the kind of data and insights held within a best-in-class HCM are integrated with the speed and analytical capacity of a modern AI-powered ERP – businesses get the best of both worlds.

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HR software glossary

Human capital management (HCM) is a broad set of practices and applications for recruiting, managing, and developing a company’s human capital – aka their workforce. Human capital management is often used as the umbrella term to describe the entire HR software category.

Human experience management (HXM) is SAP’s vision for the future of human capital management (HCM). It builds on the best of SAP’s HCM solutions and puts greater emphasis on employee experiences and engagement.

A human resource information system (HRIS) is software that helps companies manage and automate their core HR processes – such as recruiting, applicant tracking, time and attendance, benefits administration, and payroll. The software also includes an employee database (the “information” part of HRIS) to organize and manage employee data, from names and addresses to social security numbers and work permits. Some HRIS software also offers employee self-service tools, embedded localization, and regulatory compliance, reporting, and more.

A human resource management system (HRMS) is a type of software that includes all the features offered in a HRIS system plus additional talent management capabilities. These capabilities vary from HRMS to HRMS but often include performance management, learning and development, succession planning, people analytics, workforce planning, and employee experience management.

Human resource information system (HRIS) and human resource management system (HRMS) are sometimes used interchangeably – and sometimes, definitions vary for each. However, at SAP we see a clear distinction. An HRIS system includes an employee database and functionality for core HR processes. An HRMS system is broader. It includes an HRIS plus additional talent management capabilities, such as employee learning, development, performance management, and analytics.

An applicant tracking system (ATS) is a type of software used by recruiters and employers to track candidates throughout the hiring process. ATS software can post and manage job ads on multiple sites, collect the job applications coming in, sort and rank candidates, automate responses, send out interview reminders, and more.

Talent acquisition is the ongoing process of acquiring the right employees to meet business goals. It includes all the processes employers use for finding, recruiting, tracking, assessing, and interviewing job candidates – as well as onboarding new hires. Leveraging recruiting software to support your talent acquisition needs will help simplify hiring, streamline workflows, and enable consistency with automation, rules, and self-service tools.

Talent management follows talent acquisition. Talent management is the ongoing process of developing and retaining employees. It includes training, performance assessments and management, leadership development, succession planning, and more.

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