Human capital management is a set of programs, processes, and technologies an organization utilizes to improve and modernize its workforce to increase business value. It involves aligning HR practices with the overall business strategy and ensuring that the organization has the right people with the right skills and systems to support its strategic goals. Human capital management is crucial for organizations in optimizing their workforce potential, increasing productivity, and achieving their business goals.  Strategies and focus areas can range from effective recruiting and onboarding, professional development and managing the workforce effectively, to payroll and benefits.

Human capital management is considered an important resource for organizations as it can lead to increased productivity and innovation.

Organizations that have a talent or workforce-first culture create a significant competitive advantage. Organizations with a strong culture can increase organization performance, profitability, and customer satisfaction.

There’s a notable difference in organizational performance when evaluating organizations that invest in their talent and those that don’t. There’s also a staggering difference when comparing the workforce and culture in its entirety.

Organizations who truly invest in their human capital are also investing in themselves. We see increased brand awareness and recognition, cultural alignment between the organization and its people’s goals, stronger market presence and influence, and overall increase in performance and productivity.

Organizations that invest in human capital invest in themselves and often build a workforce with:

• Improved skills and capabilities
• Employee engagement and satisfaction
• Expanded talent attraction reach
• Engaged peers and management
• Increased ability to retain high caliber talent

Overall, organizations invest in human capital management to optimize their workforce potential, improve performance, attract, and retain top talent, foster innovation, and maintain a competitive advantage in the market.

Organizations need various human capital management programs and processes to effectively manage their workforce regardless of organization size or industry.

Common programs and processes can include:

• Talent Acquisition. Attract and hire the workforce into an organization, including workforce planning, candidate sourcing, screening, interviewing, and hiring.
• Onboarding, Training, and Professional Development. Develop and implement a learning and development strategy that cultivates skills and capabilities that will benefit the organization short and long-term—including on the job training, workshops, seminars, mentoring programs, and required compliance, policy, and safety-based training. Establish a work culture that embraces learning and a growth mindset. Identify frameworks and processes that raise the skillset of the employees and leadership in ways that improve outcomes and align with the organization’s culture.
• Talent & Performance Management. Manage the performance of the workforce based on defined goals and key performance indicators (KPIs), such as goal setting, goal review, performance review, succession management, and more.
• Workforce Planning. Build infrastructure to efficiently allocate human capital across the organization, measure workforce impact, plan for future needs, and align employee contributions to strategic goals.
• Compensation and Total Rewards. Navigate the complexities of internal and industry salary scales; benefits like profit-sharing and family leave, and employee incentives such as bonuses and stock grants—this helps to develop a consistent system of rewards that fits the organization’s culture, motivates the workforce, and retains top performers. Provide benefits that focus on supporting employees’ health and wellness, such as medical, dental, vision, legal, mental health, and leave of absence.

Other programs and processes may include:

• Payroll
• Time and attendance
• Flexible working
• Return to work
• Diversity, equity, and inclusion (DEI)
• Employee engagement
• Employee retention

Workforce expansion is continuously changing and evolving.

Most organizations would define the workforce as individuals employed by an organization, including full-time and part-time employees. However, in recent years that definition evolved, with the workforce considered any individual or company who fulfills the following work requirements:

• Fixed-term employment
• Short-term employment
• Long-term employment
• Project-based
• Advisory

Currently, in addition to traditional employees, human capital management actively manage:

• Alumni
• Retirees
• Temporary workers
• Contractors
• Gig workers
• Interns
• Seasonal workers
• Apprenticeships
• Outsourced workers

This broader definition raises a question: Do organizations invest in all these worker categories?

The short answer is yes, all worker types are paid for their work; therefore, an investment is made. However, not all workers are eligible to participate in the same programs provided by the organization.  

As an example, most organizations invest heavily in performance management, career development, career pathing, and learning and development to upskill its employees.

A key goal of human capital management programs is to improve and modernize its workforce.

Workforce optimization is focused on scaling the existing workforce to meet the current business needs.

Organizations do this by acquiring, sharing, building, borrowing, or returning workforce skills and capabilities through:

• Acquire. Hire new talent to fill or replace existing roles.
• Share. Make use of the skills and capabilities across the organization.
• Build. Upskill talent through shadowing, training, and development.
• Borrow. Utilize skills and capabilities outside the organization.
• Return. Employ alumni or retirees to fill a specific talent gap.

Technology that’s well matched to an organization’s needs can prove invaluable in human capital management.

Organizations can use a single platform or multiple separate platforms that suit their needs to streamline processes throughout the employee lifecycle. 

Thanks to automation of processes, data security, instant reports, analytics, artificial intelligence (AI), and more, human resources (HR) departments can transition from a transactional function to a more strategic one focusing on employee engagement, satisfaction, and well-being—which in turn helps achieve better business results.

Artificial Intelligence (AI) in Human Capital Management

AI is a hot topic and has been used in some aspects of human capital management for some time. 

For example, recruiters use bots to prescreen candidates before a resume advances to a recruiter’s inbox. Business leaders use predictive analytics to turn historical data into smart predictions about business and workforce trends.

AI can analyze employee data from engagement surveys and performance metrics, to help identify employees who would be more likely to leave the organization. 

AI can also help identify skill and learning gaps, and address those with personalized learning and development programs. AI helps HR make informed decisions, improve efficiency, and increase productivity.

With all its advantages, AI also presents some potential challenges. Since AI can pull information from many different sources, including human interaction, human biases can potentially be incorporated into AI algorithms.

Specialists are concerned about AI’s potential discriminatory practices, starting with recruiting, and continuing through possible layoffs. Going forward, business leaders should focus on AI’s capabilities and its applications in human capital management, including increased transparency on how AI affects work culture and individual employees.