Although often used interchangeably, human capital management (HCM) and management (HRM) are not the same. HRM and HCM are very similar and often overlap, but there are distinctions. Simply put, HRM primarily focuses on core administrative human resource functions such as administering employee benefits, running payroll, employment law compliance, on/off boarding and maintaining employee records. HCM is a broader term that includes HRM functions and focuses on ways in which to maximize the value and return on investment of employees. While HRM focuses on developing and managing systems and processes that enable employees to effectively perform their jobs, HCM focuses on maximizing employees’ economic value to an organization. Put another way, HRM is the foundation and structure of the human resource function that enables HCM to grow and prosper. From a historical perspective, both methodologies developed in response to changes in perceptions of workers and their place in society and a recognition of their integral role in corporate America.
HRM Came First
In the early to mid-20th century, the workplace began to change with the realization that employees weren’t just manufacturing machines but actual people with needs. Slowly “personnel departments” began popping up and labor unions formed advocating for employees’ needs and their safety. Human resource management, as a comprehensive approach to managing a company’s employees and providing them with the support needed to thrive, was “born.” The early 60s brought federal legislation leveling the playing field for all and making discrimination in the workplace criminal with the Equal Pay Act of 1963 and Civil Rights Act of 1964. Human resource departments were tasked with ensuring compliance with these laws as well as subsequent legislation. The 21st century brought new HRM challenges by adding employee engagement and corporate culture to the equation. Advances in technology created fierce competition for good talent shifting HRM focus to work-life issues and searching for ways in which to recruit and retain the best talent, and these challenges continue to be a focus of HRM today.
HCM has its roots in the mid-20th century when the term “human capital” was first used, and business leaders began realizing the true value of employees was their ability to generate corporate profitability. Although an intangible asset, human capital had very real economic value with observable results. Companies began viewing employees as an investment, that when properly cared for and trained, could result in marked advances in productivity leading to increased corporate profit. A ROI could be calculated, quantifying a company’s investment in its employees. With this realization, HCM took shape with a goal of creating set organizational practices in recruitment, management and development geared towards developing specific competencies among employees. Corporate America finally realized, when given the right resources and framework, employees bring real and measurable value to an organization.
Key Difference Between HRM Vs. HCM
The key difference between HRM vs. HCM is the objective of each’s approach. For example, HRM and HCM both have a role in training, in very different ways. HCM involves identifying the competitive skills employees need to bring value to the organization. HRM involves identifying the proper training techniques and software to deliver the desired outcome – enhanced employee skills and or knowledge. HRM also involves tracking and measuring the success of training methodologies and assessing what employees learn through their job performance.
Recruiting and hiring is another area in which HRM and HCM complement each other but with differing objectives. HCM involves identifying employees with the necessary skills needed to bring value to the organization. Once these employees are identified, HRM’s role is to create and manage a streamlined recruiting and onboarding process that enables the organization to fill vacancies with the best people.
HRM Or HCM?
HRM and HCM are not mutually exclusive. Most would agree, organizations perform best using a combination of both when working towards longer-term, strategic corporate goals. Both methodologies put employees first in all human resource functions such as recruiting, onboarding, training, development and compensation to enable companies to reach their maximum potential and economic goals.
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While it took over a century for HRM and HCM to gain footing and become established corporate methodologies, recent events have led to many changes and new challenges in the HR world affecting both HRM and HCM. A global pandemic completely changed the way in which we work almost overnight having far-reaching implication for HR in terms of employee productivity, managing a virtual workforce, dealing with fewer women in the workplace, recruiting in a rapidly-changing talent pool and improving the employee experience through DEI initiatives. These changes present an opportunity to examine existing HRM and HCM tools and procedures and identify ways to improve both. Smart HR has helped its clients navigate this new HR world and can help you too. Call today.