What Is Human Capital Management (HCM)?

Employees expect their companies to invest in their careers and provide professional growth opportunities. Employers expect their workforces to be nimble enough to support rapid changes in the business landscape.

Human capital management (HCM) can deliver on both goals.

Active HCM requires executive support and provides the highest returns when done on a continuous basis. But it’s worth the effort because only through proper workforce management can companies successfully navigate economic shifts, increase the return on their investments in human capital, and achieve desired business results.

What Is Human Capital Management (HCM)?

HCM is a set of practices and processes a business may use to acquire, develop, and optimize its workforce. HCM gives HR leaders a framework to help managers and executives align business needs to workforce realities by focusing on increasing the value of each and every employee.

Combined with software, HCM helps administrative and business leaders answer the following important questions.

Administrative support:

• Which positions do we need to fill first?
• How can we streamline our processes and improve HR service delivery?
• How can we improve day-to-day employee engagement?

Strategic support:

• Who will be rewarded with a promotion this year?
• What skills will we need to achieve our three-year plan?
• Who will be our next vice president, and how can we optimize succession planning?

Key Takeaways

• HCM includes functions, such as talent acquisition, employee development, workforce optimization, and engagement.
• Its goal is to align people strategy with business goals.
• Effective HCM improves retention, performance, and workforce agility by integrating human resources (HR) processes across the entire employee lifecycle.
• The future of HCM is a people-first approach that improves the well-being and employability of workers to support business success.
• Centralized HCM systems can improve efficiency, eliminate data silos, and support real-time, strategic workforce planning.

Human Capital Management Explained

HCM aims to align talent management with business objectives so companies can get the most out of their workforce’s potential—and help them reach that potential. Broader and more strategic than traditional HR functions, modern HCM functions often use data, alongside advanced tools, such as automation and predictive analytics, to inform decisions about talent acquisition, workforce planning, employee development, engagement, and retention.

A holistic approach to HCM addresses the entire employee life cycle—from recruitment and onboarding to career development and succession planning. When done correctly, it can help companies maintain a competitive edge by attracting and retaining top talent and cultivating a culture of continuous development in which employees are encouraged to upskill, leaders are empowered to mentor, and businesses proactively invest in the growth and mobility of their workforce.

Video: What is HCM?

Why Is Human Capital Management Important?

HCM aligns and measures a company’s two most important assets: people and capital. It’s an important process that keeps companies supplied with the right human resources at the right time to achieve business objectives now and in the future.

From a workforce perspective, HCM is important because it’s how they employees with the company to advance their skills and responsibilities and develop their careers. Surprisingly, more employees will leave a company because they don’t believe there’s any opportunity to grow their careers than because of compensation.

Core Functions of Human Capital Management

HCM is the umbrella term that encompasses a wide range of functions related to managing an company’s workforce. These functions include traditional HR tasks, as well as talent management and talent development tasks, including:

• Recruiting: Identifying, attracting, and selecting the right candidates to meet organizational needs. Workforce planning, employer branding, sourcing strategies, and structured hiring processes can all help find the best fit.
• Onboarding: Helping new hires integrate smoothly into the company by providing clear expectations, training, and resources. A strong onboarding process has been found to enhance engagement and retention.
• Training: Developing employees through skill-building programs and other continuous learning opportunities. Training should match workforce capabilities to business objectives while preparing employees for career growth.
• Payroll: Managing employee compensation accurately and efficiently while complying with tax regulations and labor laws. Payroll includes calculating wages and deductions, as well as careful financial recordkeeping.
• Benefits: Designing and administering employee benefits programs, such as health insurance, retirement plans, paid time off, wellness initiatives, and flexible work arrangements. Benefits strategies can help attract and retain top talent while supporting employee wellbeing.
• Talent management: Overseeing performance management, career development, and succession planning to encourage workers to reach their true potential while meeting current—and future—business needs.
• Compliance: Adhering to labor laws, industry regulations, and workplace policies to minimize legal and financial risks. Compliance efforts include recordkeeping, reporting, workplace safety, and equal employment practices.
• Reporting: Analyzing workforce data to track key HR metrics, such as employee engagement and turnover. The resulting data can inform decision-making to improve organizational effectiveness—for example, by helping predict future workforce needs.

Core Objectives of Human Capital Management

There are four core objectives of HCM: talent acquisition, talent management, employee engagement, and workforce organization. Talent acquisition brings in the right people, talent management helps them grow (and stick around), employee engagement supports motivation and productivity, and workforce organization structures roles and responsibilities for efficient operations.

While each objective plays a distinct role, they’re interconnected. For instance, a well-organized workforce supports engagement, engaged employees are easier to retain, and effective talent management strengthens acquisition by building a strong employer brand.

Talent Acquisition

Talent acquisition encompasses the resources and processes needed to acquire new talent to help achieve a business objective. Some of the areas it examines and measures include:

• Cost per acquisition
• Time to fill a position
• Recruiter productivity
• Quality of hires
• Onboarding efficiency
• Diversity of hires
• Competitiveness of offers
• The candidate experience
• Strength of recruiting sources
• Employer brand equity

All of these and other key performance metrics help decision-makers improve acquisition practices and processes. They also help determine if positions are best filled with full-time, part-time, or contract positions.

Talent management

Once the workforce has been acquired, the next core aspect of HCM is management and development, which focuses on how to develop each employee to increase loyalty and productivity. Some of the areas talent management measures and examines include:

• Training program participation rates
• Training spend per employee
• Promotion trends
• Retention rates
• Turnover rates
• Employee performance
• Team performance
• Return on development investment

These metrics—and others—help decision-makers understand their company culture and improve development programs and practices.

Employee Engagement

Engaged employees contribute to a more productive, innovative, and resilient workforce. Employee engagement initiatives focus on motivation, job satisfaction, and alignment with company values to drive better performance and retention. Some of the areas employee engagement examines and measures include:

• Employee Net Promoter Score (eNPS)
• Job satisfaction scores
• Manager effectiveness ratings
• Work-life balance satisfaction
• Feedback and recognition frequency
• Participation in engagement initiatives
• Absenteeism and presenteeism rates
• Internal mobility rates
• Alignment with company mission and values

These key performance metrics help decision-makers assess morale, identify risk areas, and implement strategies to foster a more committed and high-performing workforce.

Workforce Optimization

This more strategic aspect of HCM helps companies focus workforce efforts to maintain customer satisfaction, increase profitability, and keep cash flowing when faced with changing economic conditions. The best ideas to control costs or improve processes often come from front-line employees, so it pays to ensure human resources are in place to support periods of rapid growth.

Optimization practices and processes are also deployed when planning future workforce needs or during due diligence for a merger or acquisition. Key areas workforce optimization deals with include:

• Workforce productivity
• Labor cost efficiency
• Staffing levels vs. business demand
• Overtime utilization
• Revenue per employee
• Span of control (manager-to-employee ratios)
• Workforce flexibility and adaptability
• Automation and process efficiency

These key performance metrics help decision-makers adjust workforce strategies, control costs, improve processes, and ensure the right talent is in place to meet business demands.

HCM Software

HCM software is a suite of applications that help companies acquire, develop, manage, and optimize their workforces. It’s unique because each person in the workforce uses some aspect of the suite each day. HCM software provides the following functionality:

• Centralized payroll and HR data: Having all of this information in one place enables more streamlined processes and access to real-time data to enable better cost controls and stronger analytics.
• Automated Recruitment: Makes the recruiting process more efficient for the recruiter while providing a great candidate experience.
• Talent development and retention: Offers ways for HR to create learning plans and establish goals, while employees can gain certifications and be rewarded and recognized for performance so that a company can retain more of its top talent.
• Management of time, attendance, and benefits: Self-service capabilities for common tasks, such as filling out timecards or requesting time off, help employees and managers perform a lot of these everyday jobs themselves without involving HR resources.
• Reporting and analytics: With standard reporting in areas such as compliance and the ability to create your own reports, HCM software gives HR leaders the ability to see the relationships between workforce performance and financial performance to make better decisions.

Human Capital Management Challenges

An active human capital management practice isn’t just good for the HR department. It requires support from senior leadership, but in return it pays dividends for the entire organization.

So why is it such a challenge to improve leading workforce performance metrics and become more competitive for top job candidates? Here are some common challenges with human capital management—and tips to overcome them:

• Problem: Data silos are the enemy. When HCM information resides in multiple systems, it’s extremely difficult, time-consuming and expensive to get an accurate view of your workforce that covers everything leaders need to make important workforce decisions.
  • Tip: The fewer HCM systems you have, the easier it is to centralize your data, share it with decision-makers, and be agile and confident with workforce decisions.
• Problem: HCM isn’t used frequently enough. A lot of companies embrace human capital practices during the annual budgeting process, then they fall by the wayside. Or employee performance is formally reviewed only once a year. This point-in-time approach leads to reactive workforce decisions when things change during the year.
  • Tip: Senior leaders should be looking at HCM data each month, and managers should be developing their employees each week.
• Problem: No time for employee development. Employees aren’t given enough time to acquire new skills or develop a career path plan. When cost-cutting measures are needed, one of the first items to be cut is employee training programs.
  • Tip: Develop learning programs and career paths that have a balance of fee-based and free training content. Recognize and reward employees for completing their development programs, and support a few hours a month for them to spend learning and growing.

6 Key Human Capital Management Benefits

The benefits of developing human capital management practices—and using software to implement those practices—are widespread and consistent.

It is important to point out that HCM is not just for large enterprises. Smaller firms have the same challenges as big companies, perhaps just on a lesser scale. However, losing top talent at a smaller company has a more direct impact to business performance than it does at a larger company.

There are some key benefits of implementing HCM that apply no matter the size of the business:

1. HR becomes a more strategic business partner: With HCM software and data available to them, HR professionals make more strategic contributions to the company’s workforce decisions while helping break down departmental silos to improve overall organizational communication and culture.

2. Increase employee satisfaction: Companies that invest in the professional development of their employees are rewarded with higher levels of employee satisfaction. When employers afforded their workers the opportunity to learn and develop new skills, workers are likely to be more satisfied with their job—and their employer.

3. Higher retention rates: Career advancement opportunities are top of mind with employees when they are deciding whether to stay with a company or start a job search. HCM’s career-pathing capabilities help employees see their futures and increase loyalty.

4. More engaged employees: Only 31% of U.S. employees are engaged—the lowest it’s been in a decade, according to a late 2024 Gallup poll. With a commitment to professional development and evidence of upward job mobility in the workforce, HCM can help create more productive and engaged employees.

5. More efficient recruitment: Employees are the best source to refer top talent to your organization. When employees feel valued by their employers, they are more likely to recommend people to the company, so recruiters and hiring managers don’t have to sift through stacks of resumes to fill a position.

6. More meaningful performance reviews: The relationship between manager and employee becomes stronger through consistent, frequent conversations about performance and achieving goals. With the continuous feedback on performance found in HCM solutions, managers and employees can work together for better outcomes.

HCM vs. HRMS

The terms “HCM” and “HRMS” (human resource management system) are often used synonymously to describe the technology, practices, and processes HR professionals use to record, manage, and analyze a workforce. If differences are to be had, HCM tends to lean more toward the strategic nature of quantifying a workforce into business value to help non-HR leaders make important decisions about the current employee base.

HCM systems are also used to describe the process of looking at future workforce needs and developing plans that align with longer-term business objectives.

Human Capital Management Best Practices

More than three-quarters (76%) of companies recognize the importance of improving the wellbeing, career-growth, and equity of their workforce, yet fewer than half are doing something about it, and only a small fraction (10%) are making meaningful progress. Meanwhile, 89% of executives believe their companies are advancing efforts to create value for their workforce—yet only 41% of employees agree. Unsurprisingly, businesses that successfully close this gap are roughly twice as likely to meet or exceed their financial goals while providing meaningful work for employees. The following best practices can help companies bridge the gap:

• Build a positive reputation as an employer: A strong employer brand attracts top talent and enhances retention. Companies that prioritize workplace culture, competitive benefits, and transparent leadership create an environment where people want to work—and stay.
• Leverage workforce analytics: Data shouldn’t just be collected; it should drive action. Analyzing workforce trends can help companies identify patterns in turnover, performance, and engagement, making it easier to anticipate challenges and hone HR strategies.
• Encourage an open-door corporate culture: Employees perform better when communication is transparent and leadership is accessible. Whether through regular check-ins or structured feedback loops, openness helps strengthen trust across the organization.
• Invest in continuous learning: A stagnant workforce is a vulnerable one. Providing employees with opportunities to partake in formal training programs, mentorship initiatives, cross-training opportunities, and other on-the-job learning opportunities can boost retention and keep the business competitive.
• Align your recruiting methodology with company goals: Every hire should support the company’s vision and long-term strategy. Recruitment strategies should be designed to find talent that complements business needs and future growth initiatives and meshes with others in the organization.
• Invest in automation: Manually completing repetitive HR tasks—payroll processing, benefits administration, performance tracking, candidate screening—drains time and resources. Automating these tasks can make for more efficient operations while reducing errors, allowing HR teams to focus on higher-impact initiatives, such as employee engagement and workforce planning.

Future of HCM: Trends to Watch

The way companies manage talent is undergoing a major shift. For one, artificial intelligence is no longer a distant promise—it’s already reshaping HCM, from hiring decisions to personalized career development. Rather than replacing human judgment, AI tools are helping leaders analyze hiring trends, predict turnover risks, personalize learning opportunities, and streamline workforce planning—leading to faster, more informed decisions and a better employee experience. Companies are also moving toward a skills-first approach, focusing less on job titles and degrees and more on what people can do. This shift makes continuous learning and upskilling essential—not just to keep up, but to keep employees engaged.

HCM’s role may continue to expand beyond traditional HR functions. Deloitte’s idea of “boundaryless HR” may begin to take hold—a premise that embeds HR practices across teams, geographies, and even external stakeholders. Instead of operating as a siloed function, HR would become a shared responsibility, cocreated and integrated with the people, business, and community it serves.

In the same vein, employee wellbeing is set to become less of an afterthought and more of a priority. Companies are rethinking work-life balance with flexible schedules, more autonomy, mental health support, inclusivity, and a stronger focus on retention—because keeping great people satisfied is just as important as hiring them.

Though more advanced HCM tools are on the horizon, the future of HCM is about making work more human. Companies that embrace AI without losing sight of its people, invest in learning as a competitive advantage, and build workplaces that support both business goals and employee needs are expected to be the ones that lead the way.

NetSuite SuitePeople Is a Forward-Thinking HCM Solution

The future of HCM demands more than automation—it requires a seamless, people-first approach that connects HR with the broader business. NetSuite SuitePeople Human Resource Management System eliminates fragmented systems by integrating HR, payroll, and financial data into a single platform so companies can make informed workforce decisions with up-to-the minute data. Instead of managing disconnected HR tools, leaders can track performance, optimize skills-based workforce planning, and drive employee engagement within one unified system. With built-in AI-driven analytics, self-service tools, and compliance automation, HR teams can shift from administrative workhorses to strategic enablers of talent and business success. Meanwhile, employees can easily access and manage benefits information, request time off, monitor performance progress, and engage with their teams via the system, cultivating a workplace where people feel valued and supported.

HCM is a broad, strategic business function that aims to help businesses get the most out of their workforce’s potential—and help their employees reach that potential. Data, automation, and predictive analytics tools play a major role, whether to inform decisions about talent acquisition and workforce planning or help employees stay and engaged and stick around. Companies that excel at HCM take a people-forward approach that prioritizes a path to professional development, employee wellbeing, and transparency that aligns with short- and long-term business goals.

Human Capital Management FAQs

What is the purpose of human capital management?

The purpose of human capital management (HCM) is to align and measure a company’s two most important assets: people and capital. It’s an important process to keep companies supplied with the right human resources at the right time to achieve business objectives now and in the future.

What’s the difference between HCM and HRIS?

Human resource information systems (HRIS) is a technology used to support administrative HR functions, such as managing employee records, payroll, benefits, and compliance. Human capital management (HCM) systems include everything in HRIS systems but add strategic workforce management capabilities to support talent acquisition, performance tracking, employee engagement, and other talent-related functions necessary to strategically align the workforce with business goals.

What is the difference between human capital management and talent management?

Talent management is a specialized function within human capital management (HCM). It focuses on attracting, developing, and retaining employees over time. HCM is the wider umbrella of human resource-related responsibilities that range from compliance and employee relations to payroll and benefits administration.

What is the role of HCM in a company?

The role of human capital management (HCM) is to attract, develop, engage, and retain talent while aligning workforce strategies with business goals. An HCM system supports these efforts by centralizing workforce data, automating core HR processes, and providing analytics to inform decision-making and enhance the employee experience.