A human capital investment analysis can identify which employees need what kinds of training.

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By Indeed Editorial Team

Updated September 15, 2021 | Published February 25, 2020

Updated September 15, 2021

Published February 25, 2020

Human capital management is a process that’s used to attract talent as well as support and encourage employees to reach their full potential. Human capital management can help your company improve employee performance and increase retention. In this article, we discuss what human capital management is, the functions this practice serves and the benefits of human capital management.

What is human capital management?

Human capital management is a practice that organizations use to attract, recruit, train, develop and retain the best employees to achieve short- and long-term objectives. The system allows companies to invest in their employees to allow them to contribute at the highest level to the achievement of business goals. Human capital management sees employees as valuable resources that must be harnessed to fulfill their potential.

Organizations that depend on employees to achieve most of their objectives allocate resources to grow and develop the core skills and competencies their staff needs to deliver results. Human capital management helps them to identify gaps in their capabilities and focus recruitment efforts towards meeting those needs. This provides more job fulfillment for employees because they get to work in positions that allow them to use their strengths. For the organization, human capital management creates a loyal workforce that helps it accomplish its goals.

Related: Human Resources: Definition and How It Works

What does human capital management involve?

Human capital management focuses on adding value to an organization's people resources so they can deliver the best results. It covers human resources functions, compensation, performance and other key areas vital to the tactical and strategic vision and mission of a company.

Human capital management provides a process for optimizing the performance and efficiency of a company's staff. It provides an overall strategy to guide talent attraction, recruitment, onboarding, employee training and development, performance appraisal and feedback.

This system creates an environment that allows individual employees to excel by identifying each person's skills and competencies and matches employees with a position that allows them to maximize their potential. This allows the company to derive a high return on investment in staff training and improves employee job satisfaction.

Human capital management can create a strong organizational culture that promotes employee development, honest feedback and commitment to company goals. It can give employees more control over their careers and encourage them to dedicate their skills and talent to the employer for the long term.

Related: Human Resource Management and Their Role in Your Job Search

Benefits of human capital management

The biggest benefit of human capital management is that it allows organizations to get maximum value from their employees. It simplifies human resource duties and offers several other benefits. Here are the benefits of human capital management:

1. Improve human capital management

The main advantage of human capital management is that it provides a process for managing a company's people resources. It creates an overall system the human resource department can use to deliver the best talents and train them to achieve organizational goals.

2. Enhance the recruitment process

Effective human capital management makes it easier to attract the best candidates to your organization. It offers hiring managers a database of candidates with the best job-specific skills and experiences. Human capital management allows interviewers and the company's public relations team to position the organization as an ideal employer, attracting candidates that can deliver results. This system also improves the onboarding process and helps new candidates fit into the organization easily.

3. Identify capability gaps

A vital role of human capital management is to identify gaps in the capabilities of the workforce. This helps the human resource department adjust the recruitment criteria to fill positions that will improve the organization's ability to achieve its objectives.

4. Improve organic growth

Since human capital management can identify the competencies of individual employees, it is a powerful tool for organic growth. It achieves this by helping the organization optimize internal resources to improve productivity and boost revenue. This is possible because human capital management invests in the growth and development of employees, equipping them with the capabilities to deliver positive results.

5. Match positions with employee capabilities

Human capital management can help organizations match employees with positions where they can use their skills and talents. This is because the system has processes that can identify the individual strengths and competencies of employees. By pairing people with positions that allow them to use their skills, employees derive more satisfaction at work and the company enjoys greater productivity, efficiency and loyalty.

6. Improve productivity and efficiency

Human capital management is all about making the best use of available human resources for maximum returns. By investing in training that develops specific capabilities the organization needs to accomplish its goals, human capital management helps boost productivity. It also improves efficiency because the system places employees in roles where they can perform at their best.

7. Improve performance reviews

Human capital management promotes excellence by improving the effectiveness of performance reviews. It provides different levels of employee appraisal including self-reviews, peer reviews and manager reviews. This provides employees with actionable feedback on their contributions to the organization and motivates them to do more.

Related: Using Performance Management in the Workplace

8. Allows better career planning

Human capital management gives employees more control over their careers. It identifies capability gaps through training, surveys, performance reviews and other sources of feedback. This helps employees to know areas where they need to improve to deliver better results in personal and company goals.

Functions of human capital management

The primary function of human capital management is to increase the value of people's resources so that they can contribute meaningfully to the organization. Here are the roles of human capital management in a company:

1. Hire talent

One of the most important functions of human capital management is to attract and hire talent that helps the organization achieve its goals. It provides all the tools the human resources department needs to position the organization as an ideal workplace for the best candidates and make the recruitment process hitch-free.

2. Orientation

Managing human capital requires the effective and efficient onboarding of new employees. It introduces them to the company culture, job requirements and expectations and creates an enabling environment that helps them fit into their roles.

3. Employee training and development

Another function of human capital management is to provide adequate training to help employees deliver the best performance for the organization. It creates an enabling environment that encourages growth and development to help people gain new skills and capabilities to deliver better results and advance their careers.

4. Employee retention

Human capital management aims to increase employee job satisfaction by allowing them to use their skills and knowledge to contribute to organizational objectives. This gives people a sense of belonging while making them feel valued and committed to their employers.

5. Effective performance appraisal and feedback

Human capital management creates multiple systems for measuring performance to improve productivity and efficiency. Through a variety of employee reviews and surveys, this practice can help management identify gaps in training, resources, job satisfaction and other things that can affect the effectiveness of the workforce. The company can then use this information to provide feedback to help all parties to improve for better results.

6. Provides access to data

Human capital management provides a database of actionable insights that can help management add more value to their employees. Data from performance reviews, employee benefits claims, skills, turnover rate and other vital statistics can help the organization adjust its strategies and practices to improve the work environment and achieve objectives.

How to improve human capital management

Organizations that depend on their employees for much of their success must always find better ways to manage their human capital. Here are ways to improve human capital management:

1. Invest in existing staff

Many organizations dedicate resources to attracting and hiring new talent to the detriment of existing employees. This can prevent the organization from maximizing the potential of existing staff. By investing in the growth and development of current employees, organizations can achieve greater organic growth with reduced training costs. This can improve job satisfaction and increase employee retention rates.

2. Personalize human capital management

To achieve more success, have a personalized approach to managing your human capital. Individuals are different and the way each employee will process information and guidelines will differ. Rather than apply the same solution to everybody, try to know the strengths and weaknesses of individuals and provide an environment that will encourage everyone to upgrade their skills and knowledge.

3. Leverage technology

Technological solutions can boost the success of human capital management. Mobile apps can improve training, increase communication and collaboration and reduce time and location barriers. It can also help you automate several business processes, cut running costs and reduce the time employees need to access and share data or provide feedback.

4. Align human capital management with business goals

A great way to improve your human capital management is to match it with business objectives. By aligning human capital management with your business strategy, the company can identify the capabilities it needs to solve specific business problems. For example, the company may need to train its IT department on the use of a new software application to meet client expectations.

5. Improve communication

Communication is a critical success factor for managing a company's human capital. Improved communication can boost employee engagement and provide a better understanding of the human capital management processes. This will allow employees to know the company's expectations and what they will get.