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Human capital management

What is Human Capital Management and Why is it important?

Posted on January 16, 2023September 16, 2023 By Master James No Comments on What is Human Capital Management and Why is it important?
Technology

The world is changing at a fast rate. Technology is changing the workforce and revolutionising the workplace. More and more businesses are producing digital products rather than physical ones. This means that, now more than ever, a company’s success is determined by its ability to solve problems, manage knowledge, and develop human capital. But what exactly is human capital?

Human capital is the economic value provided by an employee’s skills, knowledge, and abilities. This expense can account for up to 70% of a company’s operating costs in some industries.

Human Capital Management: Definition

The definition of human capital may appear complicated, but it is actually a simple concept. It is assumed that investments in people (for example, education, training, and health) will increase an individual’s productivity. A more productive employee is more valuable to a company.

In terms of the actual definition of human capital management, it can be summarised as the set of practises that human resource managers should follow while hiring, managing staff, and optimising the workforce.  A human capital management system has long been needed and applied.

Employees must be viewed as an investment rather than a cost by businesses. Forward-thinking businesses are strengthening the HR department’s strategic capabilities by retooling it to practise human capital management. Businesses can better manage their most valuable resource by establishing a human capital department.

Main Elements of a Human Capital Management System

Human capital management provides an opportunity to view employees as assets rather than liabilities. Human capital HR departments can use a four-pronged approach to address risks.

Planning 

In starting, businesses must learn their workforce requirements. What are the most important risks to the business? Why are employees dissatisfied? How can employers ensure that their workforce is large enough to complete the required tasks while also allowing for employee mobility?

Recruitment of Employees

The first stage of an employee’s life cycle is acquisition, also known as hiring. An HCM approach will attract top talent for open positions through strict practices in recruitment, applicant tracking, and onboarding.

Managers must check for the following:

  • Competence: It means that the employee possesses the necessary skills and knowledge to perform their duties.
  • Compliance: That the employee adheres by federal and state anti-discrimination and inclusion laws.
  • Diversity: Employers also want to ensure that their workforce reflects a commitment to diverse communities.

Employee Management

HCM must maintain its workforce. Business owners should strive to have smooth administrative functions, like employee annual leave management as well as automated payroll for wages and salaries, to keep employees satisfied.

Managers should also ensure that employees receive the necessary education and training to perform their duties. Human capital management solutions must include performance management software to effectively track and enhance employee performance. An HCM approach paves the way to success by systematizing goal-setting and task-tracking. It also provides the necessary supervision to prevent corruption, as well as communication to improve retention and reduce the factors that contribute to high turnover rates.

Talent Management

Proactive businesses are always looking for ways to improve employee engagement, increase productivity, and get the most out of their employees. Human capital strategy requires workers to train their employees not only for the skills they need now, but also for the skill set they will need in the future. This could entail re-skilling or up-skilling. This results in a more flexible workforce, allowing employees to pursue opportunities for growth and development. A little thinking in human capital planning can go a long way.

Why is Human Capital Management Important?

You should now have a better understanding of what human capital management is, but why is it important? What is the significance of human capital management? 

Human capital management is becoming increasingly important as a competitive advantage for smart leaders. According to the data, companies that prioritise engagement, well-being, company culture, as well as employee development outperform their competitors.

Human capital utilisation and engagement have also been shown to have a direct impact on a variety of organisational KPIs (Key Performance Indicators), such as productivity, employee turnover, product quality, work safety, as well as customer satisfaction.

There are a number of compelling statistics comparing the performance of business units in the highest quartile of global employee engagement to those in the bottom quartile.

  • Higher productivity: 41% less absenteeism and 17% higher output.
  • Lower turnover: Highly engaged business units gain 24% lower turnover in organisations with high employee turnover.
  • Product quality is improved: highly engaged business units have 40% fewer quality incidents (defects).
  • Better customer experience: Highly engaged business units achieve a 10% increase in customer metrics and a 20% increase in sales.

About FlexC

FlexC was founded with the goal of connecting top Indian talent with international markets. FlexC is dedicated to bringing together verified experts, passionate leaders, founders, and executives in a dynamic setting. The strength of our platform and the incredible AI technology that distinguishes us reflect our dedication to excellence. In addition to providing the best freelance jobs in India, we strive to be the best platform for hiring and managing hybrid workforces with human capital Management.

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