No matter the strategic vision of an organization’s top leadership, ultimately, it is human beings that drive success. In the 1950s, economists Gary Becker and Theodore Schultz created the Human Capital Theory, which posits that human knowledge, motivation, training, skills and even personal well-being are forms of capital. As with other forms of capital that appear on a balance sheet, investing properly in the intangible assets of human beings increases financial performance for the companies that hire them and the employees themselves.
Organizations that take this concept to heart reap the benefits. Their employees feel valued and it shows in their job satisfaction scores. They are happier, more loyal and better performing. The companies can develop leaders from within, and as a result, they are more productive, innovative and profitable. Established and aspiring business professionals must understand how the intangible qualities of human capital – more than any other investment – drive businesses to grow and compete successfully.
What Is Human Capital Management (HCM)?
The concepts of human capital management (HCM) and human resources management (HRM) are overlapping rather than synonymous. HCM aims to maximize return on investment (ROI) from employees by investing in practices and people management skills to optimize human potential. HRM creates an organizational infrastructure of systems, policies and processes to enable optimal hiring, employee retention, training and professional development. HCM encompasses people management strategies that are outside of the realm of HRM.
Human capital management comprises the basic functions of human resources, including recruitment, retention, compensation, benefits administration, payroll, time and attendance, onboarding, training, engagement, performance management and compliance. In addition to these standard HR functions, leaders trained in HCM can see these elements as part of a greater system and think strategically about adding value for employees to develop their core skills and competencies. They provide their organizations with strategies to improve HR functions and generate a stronger organizational culture that promotes employee development.
The Importance of Leveraging HCM
In larger organizations, the human resources (HR) department is typically responsible for all employee-related matters, including human capital. HR commonly works with managers in selecting employees, performance management, compensation, reward systems, career development, diversity management and employment law. To these ends, learning to collaborate with HR in successfully managing human capital is essential to all corporate leaders. The online Master of Business Administration (MBA) program from the University of Southern Indiana (USI) includes a Managing Human Capital course that covers thinking strategically about all these functions from an HCM perspective.
How to Manage Human Resources Effectively
So what are some of the capabilities and hallmarks of an effective human capital manager?
- Applying the concepts of intellectual, cultural and social capital, which comprise human capital. To appreciate a company’s intellectual capital is to value the knowledge, ideas and creativity that its people possess. To understand cultural capital, one must recognize how the mix of human knowledge, emotions and experience contributes to shared values. To understand social capital, a leader must understand how people effectively work together in networks.
- Focusing on employee development: Strong managers appreciate what employees want for themselves in their careers, including opportunities for professional development and upskilling. Managers and executives should contribute to effective training programs that develop the necessary skills and confidence for promoting their employees from within, even when that involves sacrifices like time away from daily responsibilities and losing valuable employees to other internal opportunities. Companies that invest in educational allowances make it easier for employees to develop the qualifications they need to advance.
- Building a positive feedback culture that balances performance reviews, self-ratings, manager assessments and peer reviews with empowering employees to provide their perspectives on improving individual and group performance.
- Using talent management and gap analysis software to track key performance indicators over time for continual incremental improvement. These include the rate of performance goals met and revenue per employee.
Review any list of top-performing organizations and best-loved employers, and you will find one commonality: These organizations value leaders with human capital management training. The USI online MBA program, developed with input from leading corporations, strongly focuses on HCM, one of many reasons top employers value their graduates.
Learn more about the University of Southern Indiana’s online Master of Business Administration program.