To say that there are a lot of acronyms in the world of business would be like saying there’s a lot of fish in the ocean: it’s basically common knowledge, and it’s a relatively big understatement. In fact, even calling it an understatement just might be an understatement. FMLA, ACA, B2B, B2C, EOD, ROI—I could keep going, but I imagine your head is already spinning. For some, these acronyms may be second nature, but for others, learning and keeping track of the meanings of all these various three or four-letter combinations can feel like a near impossible task: I mean, is the COO the chief operating officer or the chief operations officer? If the IT person asks a question about a CPU, are they asking about your computer’s central processing unit, or are they wondering about the cost per unit of the anti-virus software your company employs?
At Payday HCM, we get it. We’ve been in the business since 1985 and have seen old acronyms kick the bucket and new acronyms get acronised. Our clients are constantly approaching us with questions about the meanings of a variety of acronyms. Even with all our experience, it still can be challenging to keep track. On top of all that, we even have one of the most elusive acronyms in the business world in our name: HCM, or human capital management.
In this article, we’ll go over what exactly human capital management means. We’ll dive into the history of human capital management and how it has evolved over time. We’ll break down the various components of HCM and what sorts of things you’re typically looking for if you’re in the market for an HCM provider. By the end of this article, you’ll be such an expert in all things HCM that you’ll be running around the office bragging to all of your coworkers about how you know the meaning of this random acronym, and they don’t.
In this article, you will learn:
- The History of Human Capital Management (HCM)
- What Does Human Capital Management (HCM) Consist Of?
- What To Look For In A Human Capital Management (HCM) Provider?
The History of Human Capital Management (HCM)
In order to understand what human capital management is, we’ll first start by going into the history of the term and how human capital management came to be.
Defining Human Capital Management
To properly define human capital management, it is necessary to break the phrase up into its two components: human capital and management. Human capital, as defined by the Merriam-Webster dictionary, is “the skills, knowledge, and qualifications of a person, group, or workforce considered as economic assets.” Now, we know what you're thinking: human capital? Economic assets? This all sounds like a really weird, almost Orwellian way to talk about people.
And, well, yes, this is kind of true. The phrase human capital does sound a bit odd and maybe dystopian in some way. But the idea of human capital is almost as old as the concept of work and labor itself. Of course, the actual phrase wouldn’t become more commonplace until the years leading out of the Industrial Revolution, with the first possible usage of the term proper coming from Irving Fischer in 1897, according to Harvard University.
Human Capital and its Management
While we can think of human capital as being something that has, in a way, always existed (as long as the idea of work has), it’s more correct to assign its proper origins alongside the Industrial Revolution and the genesis of capitalism in the 19th century. Irving Shulz’s 1961 article “Investment in Human Capital,” published in the American Economic Review, has its qualms with the term but still acquiesces its importance in analyzing certain aspects of economics.
Thus, the term stuck. And as its use became more popular and commonplace, certain industries and components of running a business began to become subsumed under the umbrella of human capital which would eventually lead to the genesis of human capital management. Human resources would be born in the 1910s; payroll has essentially existed since employees have been paid; and health insurance benefits would be born out of unions in the late 19th century.
What Does Human Capital Management (HCM) Consist Of?
On the note of discussing payroll, human resources, and employee benefits, it’s time to go over what human capital management actually consists of.
HCM: Payroll, Human Resources, and Benefits
As hinted at in the section above, human capital management generally involves managing one or a combination of a business’s payroll, human resources department, or benefits administration. This is by no means an exhaustive list, as human capital management can encompass a large breadth of business-related activities falling under these three categories.
Human capital management then mostly refers to these business functions, not necessarily the actual outsourcing of them. Of course, some businesses will choose to outsource some of these functions for various reasons. Either way, we can consider all of these things under the banner of human capital management.
HCM: Outsourcing vs. In-House
When looking at a business, you’ll usually find that either they’ve outsourced some or all of the human capital management functions or they still perform these duties in-house. Running these services in-house can help to keep tight communication chains, foster a stronger sense of community within the organization, and help keep employees familiar with these processes.
Outsourcing also provides its own benefits. Choosing to outsource your business’s human capital management functions could prove cost-effective and expand the capabilities of what you can offer, such as more employee benefits or expanded self-service tools. Outsourcing can also provide you with more professional expertise on things like payroll or human resources.
What To Look For In A Human Capital Management (HCM) Provider?
The conversation surrounding outsourcing leads to our next point of discussion: important things to consider when searching for a human capital management provider.
Effective Human Capital Management
Remember how we talked about how unsettling the word human capital is? Well, ironically enough, the best HCM service providers really won’t focus too much on the strict definition of human capital. Instead, the best HCM providers are the ones who focus the most on just the first word of HCM: humans.
Ultimately, human capital management is just a code word for managing people, and for anyone who knows a thing or two about management, the most crucial element to doing it well is understanding the people you’re managing. This means a good HCM provider should, above all, be focused on understanding the people they are helping above anything else.
Do You Need an HCM Provider?
There are two ways to answer this question: no, you don’t need one so long as you run your payroll/HR/benefits departments in-house. The other way to answer the question is, well, it depends. Deciding whether your business really needs an HCM provider can become, and should be, a long discussion with many members of your organization.
We just talked about how the best HCM providers are the ones that focus the most on the people within your organization. Determining whether you need an HCM provider should revolve around the same concept. Discuss with the people on your team what your business’s needs are and how outsourcing some of these tasks may help you. It’s possible that an HCM provider isn’t what you need, which is okay.
Understand the Ins and Outs of Human Capital Management
At some point, you run into enough words or phrases throughout your time as a business owner or manager that you begin to wonder if the people who came up with them were intentionally making them hard to understand. Sure, sometimes they’re straightforward, but other times, certain words and phrases can be so vague that it can be unclear what it is that they are referring to. In some cases, human capital management can feel like one of those terms. Couldn't HCM just refer to managing in a general sense, not necessarily things like payroll or human resources specifically? Of course, with the knowledge provided here in this article, not only do you know the answer to that question, but you also know why and what to look for when it comes to HCM providers.
There’s rarely a one-size-fits-all solution for most of the problems your business faces. When it comes to payroll, human resources, and benefits, however, a human capital management service provider just might be the best way to alleviate unnecessary stress relating to these fields. Check out our article on the benefits of an all-encompassing HCM solution.
Topics: