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What is human capital management (HCM)?

Human capital management (HCM) is the set of practices and software used for recruiting, managing, and developing an organization’s human capital – aka their workforce.

In the last few years modern HR operations have seen more change and disruption than they’ve done in the preceding two decades. Yet, the core priorities of human capital management – or HCM – remain the same, including functions like recruitment, onboarding, training, and payroll. What’s changing fast is the demand for HR departments to become centers of business innovation – to deliver data-driven insights and analytics, and to take charge of compliance across entire global operations. Today’s HR teams are at the core of some powerful shifts in the way your teams work, and how employers and employees engage with each other and with their jobs.

 

The modern workforce is diverse and dynamic. Smart, connected technologies have become essential in managing this complexity. Modern HCM solutions are revolutionizing the nature of work, the way people collaborate, 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 help to craft 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.

Human capital management definition

Human capital management (HCM) refers to the broad set of practices and applications used for recruiting, managing, and developing an organization’s human capital – aka their workforce. Human capital management software refers to the systems and solutions used to accomplish and optimize those tasks and support organizational goals, and is often referred to as human resources management systems (HRMS)

What is HCM? Get all the details in this video.

How has the HCM practice evolved over the years?

The term “human capital” was coined in the early 1960s to reflect valuable employee skills that could be cultivated to drive business growth. Standard regulations around fairer employment practices were introduced for the first time, and there was a growing recognition of the importance of employees’ well-being and satisfaction. 

 

With the introduction of the internet and a demand for faster information sharing, companies began to rely on early HCM systems more and more – to help them manage the increasing complex world of work.

 

Today, the demands placed on HR teams are greater than ever – with a workforce that is far more diverse and geographically distributed. Employee expectations have also changed, with employee experience now an essential factor in employee recruitment and retention. HR has had to adapt and to better meet evolving needs and expectations. 

 

Advanced technologies are now essential to help HR manage this complexity. Unified, AI-powered HR solutions are helping to integrated teams, analyze and leverage complex data, and streamline basically every component of HR administration and management.  

HCM versus HRIS versus HRMS

Human capital management (HCM)

As outlined above, the term HCM refers to both a business practice and an HR management strategy, as well as the suite of technological and software tools that support those activities. An HCM system is often referred to as a human resources management system (HRMS) and includes HRIS software.

 

Human resources information system (HRIS)

HRIS systems support and automate core HR processes such as benefits administration, time and attendance, payroll, and other workflows. The “information” in an HR information system refers to the management and storage of employee data. The best HRIS systems typically use a consumer-grade user dashboard and allow employers and employees alike to view and manage a wide variety of records and data – with centralized control over role-based security and access clearance. An HRIS is typically included in a HCM suite (or HRMS).

 

Human resources management system (HRMS)

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

 

In the diagram below, the overarching term of human experience management (HXM) has also been added because it shows the cultural shift from simply managing employees as a resource to creating a model that puts the employees and their hire-to-retire experience at the core of HR operations .

Diagram showing the relationship between HXM, HCM, HRMS, and HRIS

Diagram showing the relationship between HXM, HCM, HRMS, and HRIS.

Explore key components and functions 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 and of modern HR software increase – along with its agility and ease of use – HR teams become increasingly reliant on integrated HCM systems to keep their operations running smoothly.
  • 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.
  • 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 talent management tools make it faster to source and hire applicants 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
    Analytics and workforce planning 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.

The benefits of HCM

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:  

  1. Boost productivity: Human capital management software can simplify and automate many HR workflows and processes to help everyone work more efficiently.
  2. 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. 
  3.  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. 
  4. 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) and the Employment, Social Affairs & Inclusion Act.

Cloud HCM and the future of HR systems

According to Gartner “By 2025, 60% of global midmarket and large enterprises will have invested in a cloud-deployed HCM suite for administrative HR and talent management.” So, what does this mean exactly? Well, most companies – regardless of their size – are already using some cloud-based HR solutions. This could include time tracking apps, 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 apps 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 app 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. They want the ability to see across their entire workforce from a single control tower and be able to access data and customize real-time reporting anytime, anywhere. They want their employees to feel empowered with self serve tools and their HR teams to be more productive and supported.

 

Cloud HCM solutions are agile and scalable – and they integrate seamlessly with the tools you’re already using, rather than trying to integrate them ad hoc, with a growing number of apps. 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 are used to manage many core activities including accounting, procurement, supply chain, R&D and many more. ERPs can integrate a multitude of business processes and amalgamate disparate datasets for analysis and reporting. They help to unify operations and provide a single source of truth across the organization.  

 

When HCM and ERP systems are integrated, the combined power of both systems helps to synchronize workforce management with overall business objectives and priorities. This can lead to optimized staffing and seasonal hiring for supply chains, better analysis of employee performance through sales and lead acquisition records, and a generally better, more predictive view of potential gaps in staffing or shifts in business needs.  

 

When choosing your HCM solutions, be sure to consider the ease of ERP integration. After all, HR data is not going to get less complex, demands for accountability aren’t going to lessen, and you’re never going to want less real-time visibility across your business operations.  

Next steps to HCM transformation

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. Learn more about how SAP SuccessFactors HCM software and how to find the perfect solutions fit for your unique HR needs and challenges.  

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Transform your HR systems

Explore SAP SuccessFactors HCM solutions today.

HR software glossary

Human capital management (HCM) refers to the broad set of practices and applications used for recruiting, managing, and developing an organization’s human capital – aka their workforce. Human capital management software refers to the systems and solutions used to accomplish and optimize those tasks and support organizational goals. HCM software is often refered to as HRMS, or a human resource management system.

A human resources information system (HRIS) helps companies manage and automate core HR processes. These HR software systems support benefits administration, time and attendance, payroll, and other workflows, as well as the storage of employee data, such as personal, demographic, and compensation information.

human resource management system (HRMS) contains withint it, all the functionality of the HRIS system plus additional talent management and learning capabilities. An HRMS also incorporates smart technologies and advanced analytics to add an increasingly strategic component to HCM operations. 

The distinction between a human resource information system (HRIS) and human resource management system (HRMS) is that an HRIS system is an employee database and functionality for core HR processes, where as an HRMS system is broader. It includes an HRIS plus additional talent management capabilities, such as employee learning, development, performance management, and analytics.

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.

Talent management is the practice of supporting the entire employee lifecycle, from initial candidate acquisition right through to succession planning.

A talent management system, or TMS, is an integrated software platform that supports core talent management processes, including recruitment, employee onboarding, performance management, learning and professional development, compensation management, and succession planning. These processes, and the technical capabilities that support them, are typically delivered via software modules. 

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