5 Key Functions of Human Capital Management (HCM)

Human capital management (HCM) provides an overall strategy to guide talent acquisition, recruitment, employee training and development, performance appraisal, and feedback.

Human Capital Management

What is the Role of Human Capital Management in an Organization?

Human Capital Management primarily focuses on core administrative HR functions and transforms the traditional administrative functions of human resource management - HR planning, recruitment, training, payroll, compensation, and performance appraisal and development - into opportunities to drive engagement, productivity and business value.

What is Human Capital in Economics?

Human capital is a way of valuing the workforce that a company, organization, or country has, thus being the most basic and important resource to generate economic growth accompanied by increases in productivity and efficiency.


Human capital is crucial to improve the competitiveness of the company in the market. It, therefore, depends on the habits, experience, skills, social and personality attributes, and efficiency of the workers to produce goods and services for the market.


Human capital is important because it is seen to increase productivity and therefore profitability. Human capital affects economic growth and can help develop the economy by expanding the knowledge and skills of its people. So the more a company invests in its employees, the more productive and profitable it could be.


A good HR team structure is one of the company's successes factors. Hence, in recent times the Human Resources Department has a decisive importance in decision-making and design of strategies in the company. 

To carry out effective human capital management, HR managers have to carry out actions in different areas. Let us see the functions of human capital management in the company.


If you belong to a Human Resources Department, or you are a manager or director of a company and you want to correctly guide the activity of your HR area, we recommend that you take into account the 5 fundamental functions in which HR should work.


5 Key Functions of Human Capital Management in the Company

In the 21st century, companies are increasingly betting on the automation of administrative tasks.

The role of human resources is now decisive in talent management so that the company can meet its objectives.

In this sense, considerable technological advances have been made in the development of human capital management software, giving rise to tools that prioritize planning, measurement, control and participation operations over the mere counting of data.

When talking about the basic functions of human capital management in the company, we refer mainly to five areas:


1. Personnel selection

Personnel selection is a methodical process of making decisions about the individuals to be hired to fill vacancies within the organization. New trends in HR make the personnel selection process one of the decisive areas in business management.

Developing and implementing an effective talent management strategic plan helps in finding the best suitable candidates for the organization.

Talent Management is concerned with attracting and retaining high-quality employees, developing their skills, and continually motivating them to improve their performance.

Talent management encompasses all tasks related to participation,  performance, development, compensation, benefits, and depart stages of the employee life cycle. It also includes all tasks related to tracking employee time and attendance.

Increasingly, HR software provides us with ways to build and analyze company needs, as well as find candidates who meet expectations, leaving less scope for decisions based on speculation.


2. Training

A company needs to be constantly updated, so training is another area on which the Human Resources Department must work in depth. 

If you want to manage human capital effectively, you must anticipate new technologies, changes in the market and new performance needs in a constantly changing environment.

In this sense, the head of HR administration must promote and guarantee the growth and potential development of the human capital of his company, as a key strategic factor of productivity and competitiveness.

 

3. Professional development

The objective of professional development is to seek the confluence between the interests of the workers and the global interests of the company.

By facilitating an objective system of incentives, promotions and changes in the organization chart, the growth and development of the workforce, HR sees possibilities for improvement and use of talent to reach new heights of success in the company.

The actions carried out by HR to promote professional development are key to achieving a good working environment and motivation of the staff.


4. Performance analysis

What are the areas of the company that need improvement? How can the skills of the workforce be improved? Are we professionally and effectively measuring and detecting employee performance indicators?

To achieve good results, human resources managers now have advanced tools in attendance control and management, recording systems, and performance control, which allow taking the necessary measures to achieve the objectives set by the company.


5. Compensation systems

Finally, it is worth mentioning the role of compensation or reward systems to reward achievements and encourage productivity and excellence at work.

The compensation system includes the total rewards that are given to the employees for the work and services they provide to the organization.

Today, companies that are seriously committed to human resources are clear that human capital is not simply a cost or an expense, but a strategic asset of the company that has a decisive influence on the achievement of objectives.


What are the main areas that the HR department will develop strategies for?

If you are responsible for Human Resources or you are looking for information on what are the functions that human capital management must fulfill in your company, the next step you should take is to ask yourself how to enhance these 5 fundamental areas so that your company can achieve its business objectives.

The measurement and analysis of data, as well as the development of internal communication mechanisms and channels, are key in decision-making and the development of human resources plans.


If you want to delve into these areas, it is essential to have a human capital management software adapted to the needs of an HR Department.


HRM Software focuses on measuring, monitoring, planning and improving the workforce based on data and information that you can collect and manage from centralized programs to reduce the weight of the trial-error method in decision-making.

This type of management will help your company to reduce costs, increase productivity and enhance profitability.

The Scientific World

The Scientific World is a Scientific and Technical Information Network that provides readers with informative & educational blogs and articles. Site Admin: Mahtab Alam Quddusi - Blogger, writer and digital publisher.

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