What is Human Capital Management | A Small Business Owners Guide & Best Practices

Jamie Fryar
January 31, 2021

What is Human capital management and why is it Important?


When we ask the question, what is Human Capital Management, it truly echoes the fact that people are the core of any great business. Managing and elevating your people is an investment in not only your business and bottom line, but also in the culture of your company, and the happiness those who run it. If you want to learn how to build a business that finds, retains and elevates great people, read on.

What is the difference between HRM, HRIS and HCM? 


The first thing to do is to understand the what before the how. So let's dig into learning about what is the difference between HRM, HRIS and HCM?
These software platforms really do exist in the same department , HR that is, but the easiest way to think of and differentiate the two would be to consider this: 

HCM | Human Capital Management

An integrated or stand alone system that focuses on hiring, managing, retaining and elevating the people in our company. It is the system that is used or integrated to manage a companies most valuable asset - its people.


HRIS | Human Resources Information System: 


A stand alone robust system that manages payroll, employee records, hiring & onboarding, ATS and internal documents.

Many different types of software share many overlapping features, but if you approach these tools through the lens of optimizing business operations while ensuring your people's workplace satisfaction, you should consider going with an all in one an integrated system. If your business requires POS integration, an integrated system that integrates with your POS will be your dream come true.

HRM | Human Resource Management
Everything the stand alone system has, with an added benefit of talent managment.

Tell me more about investing in HCM. 


Ok let's break it down even more to explain what is HMC, or human capital management, and why you should care. Technically and more uniformly speaking, the term Human Capital Management is defined by research firm Gartner, as "Human Capital Management (HCM), a practice related to people resource management. These practices are focused on the organizational need to provide specific competencies.” - Gartner

But let's take away the bells and whistles - What is the meaning of HRM? Well simply put can be broken down further into 3 subcategories: 

Human Capital = The human resources available in your business.


Managing Human Capital = The acquisition, management, and optimization of the human resources available within your business.

Human Capital Management:
 = Hiring, managing, retaining and elevating your team.

Tada! We love breakdowns, but you might still be wondering why is this important? Well, the truth is Human capital management plays a large part in employee retention and hiring. In high turnover industries like retail, restaurant, cannabis or companies who employ hourly workers, keeping good people is key. The concept of Human Capital Management lays the foundation of how your business acquires, manages and optimizes your human capital. Giving you the rare opportunity to streamline a lot of really important functions in your business, and keep good people.

How do I hire employees (acquiring human capital)?


Ok, we know that the term 'acquiring human capital' may sound a little dry and stuffy, (or fancy and cool!?) but it simply means hiring the right employees to run your business. This is a big deal because each person you hire creates a resource and knowledge base in the company.

The first step to learning how to acquire strong human capital is understanding its importance. Hiring is the first step of an employee's journey and a clear, concise recruitment process will help you in future retention and turnover prevention. In the high turnover industry that is food services, The National Restaurant Association set the restaurant industry’s turnover rate at a staggering 74.9%, while the North American industry-wide turnover rate sits at 21%. This means 74 out of every 100 restaurant employees leave their job each year.  

Turnover can account for many things including the loss of students moving into full-time careers and seasonal workers switching to new jobs. The issue with such high turnover is in the loss of resources that employees take with them. Longer term employees have more human capital as they have more company knowledge, industry know-how, and training. Investing in acquiring and hiring the right candidates will help you save significant time and money in the long run. So invest the time in acquiring your team, they are your most valued assets, and probably pretty awesome too.

How do I manage employees (managing human capital)?

As a business owner, one of your goals will be maximizing your business' value and this starts with employees. The second step in retaining a new employee is getting them started on the right foot, and nothing shouts awesome organization more than a smooth onboarding process. Managing human capital is managing people, and good management of human capital really lies in the creation of an employee profile. These profiles, whether in paper form or stored digitally online, are used to keep everything from an employee’s basic information to onboarding forms and paperwork for review and future development. In short, everything that is used to manage human capital should be kept in these individual profiles.

Proper onboarding has been linked to higher retention as is growth and succession planning. A good management process of your documentation will help make sure employees and important items are not missed.

How do I help my employees succeed (optimizing human capital)?


Optimizing human capital relates to optimizing systems and removing any resistance when it comes to recruiting, managing employee performance, training, and opportunities for growth and promotion.

In order to really lean into optimizing these systems an all in one system will make your life much easier. We also recommend gathering knowledge on how to properly onboard, and ideas for employee retention.

The Harvard Business Review states human capital drives leadership, engagement, knowledge accessibility, workforce optimization and learning capacity while The American Standard Companies used HCM to develop their human capital. Companies who invest in HCM practices saw on average a 60% to 130% growth rate in each office! Now that's a return on investment.

So whatever route you choose to take, keep in mind that a focused and clear optimization of HCM practices can help create a defined vision and expectations for employees while helping them improve their skills and confidence in the work they are doing. When you value your people, they give value back.

Want a step by step guide on how to recruit, hire, onboard, and keep great people? 

Get the Ultimate Hiring Guide for Business Owners

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