Human Capital Management vs. Human Resource Management, What’s The Difference?

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The terms Human Capital Management (HCM) and Human Resource Management (HRM) are frequently used by HR professionals. However, there are some important differences between HCM and HRM

Today, most organizations focus either on:
  • Creating a fun, exciting working culture, or
  • Producing results

But the real magic happens when you bridge the gap between the two. Understanding your human capital while operationalizing human resources is essential to your success in creating a company culture that thrives.


What is Human Capital Management (HCM)?

Human capital management is a relatively new way of thinking about employees. While the concept of human resources has been around for over 100 years, the phrase human capital emerged in the 1960s during an age of automation. Instead of looking at workers as expendable people who just completes the low-level tasks assigned to them, companies began viewing employees as valuable assets. 

Let’s start by understanding human capital on its own.

Human capital is the measure of skills, knowledge, and experience that your employees possess. These attributes are viewed in terms of their value to your organization.

The idea of human capital, however, takes a less “by the book” approach. The biggest differentiator of human capital is that it is intangible.

After all, the term capital refers to economic value — which employees can bring to an organization if it provides them with the right framework, resources, compensation, and support. Employees deliver economic value through their education, skills and expertise, personal values and beliefs, networks and connections, and their physical and mental health.

According to Investopedia, It’s a “quality that isn’t (and can’t be) listed on a company’s balance sheet.” Instead, human capital is perceived to increase productivity and thus profitability.

Human capital focuses on the value an employee can bring, and also the future value of employees as an investment the company can make.

Examples of human capital include:

  • Education
  • Training
  • Intelligence
  • Skills
  • Health
  • Loyalty
  • Punctuality
  • The list goes on!

Essentially bringing out the best in everyone to help the organization reach its goals. These activities can range from creating and properly communicating the organization’s mission, vision, and values to employees to offering professional development programs throughout an employee’s career with the organization. The approach focuses more on the person behind the resume than anything else.

What is Human Resource Management (HRM)?

HRM is a comprehensive approach to managing the employees in an organization and providing them with the support they need to thrive. When looking at HCM vs HRM, you can see that they overlap, but they differ in their primary focus. 

While HCM maximizes employees’ economic value to the organization, HRM focuses on developing and managing systems and processes that enable employees to perform their roles effectively.

Human resource management includes handling a number of tasks, such as
  • Recruiting and hiring new employees
  • Onboarding new hires
  • Training employees to do their jobs or master specific areas of their jobs
  • Developing competitive compensation plans, including pay and benefits
  • Handling disciplinary actions and conflicts
  • Meeting labor laws and industry compliance regulations
  • Creating and maintaining a supportive workplace culture
  • Managing relationships among employees and between employees and the employer

Human capital management vs human resource management: What are the main differences?

Video source: jotform.com

The significant difference between human capital management and human resource management is in the objectives of each approach. For example, training within human capital management is considered a professional development investment, ensuring employees develop competitive skills they can use to provide economic value to the company. 

Human resource management also oversees employee training. However, the focus is more on using learning management systems (LMS) to properly track the kind of training employees complete and then assess what they’ve learned through tests or projects.

Similarly, when it comes to recruiting and hiring, a human capital management approach centres on finding employees with skills the company needs to reach economic objectives. In human resource management, the focus is on creating a streamlined recruiting process that helps the company find the best people for open roles.

Regardless of which approach your organization chooses or whether you decide to use a combination of the two, it’s important to align your employee initiatives with the company’s overarching goals. This way, your recruiting, onboarding, training, compensation, and other HR activities will all work toward helping the company reach its personnel and economic targets.



Conclusion 

How can you translate human resources into human capital? (and ultimately into human investment…).

Human capital and human resource concepts are quite similar to each other. Both refer to the potential or current human skills, talent, and capabilities that are crucial for the success of an organization. 

As you look to operationalize HCM & HRM, it’s important to understand each of these aspects when managing your talent.

When Human capital and human resources are operationalized, a few things happen for your employees.

  • Employees feel safer in the workplace
  • They are more engaged and excited about work

Naturally, employees who are engaged in their work are more efficient, which ultimately, contributes greater value to your business.







Reference


jobspikr.com | JobsPikr Administrator | 2021.

investopedia.com | Will Kenton | 2023. https://www.investopedia.com/terms/h/humancapital.asp

Comments

  1. Chamil LakruwanMay 4, 2023 at 9:46 AM

    What sets this blog apart is the author's unique perspective and insightful analysis. They go beyond the surface level, providing thought-provoking insights and fresh ideas that encourage readers to think critically about the subject matter

    ReplyDelete
  2. Dinushika SenanayakeMay 5, 2023 at 7:25 AM

    HCM, is a new topic for me. gained knowledge from your post. have explained clearly the difference between HCM and HRM. thanks

    ReplyDelete

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