Human Capital Management: An updated definition

A few years ago I wrote a pretty straight-forward definition of human capital management (HCM) and explained why HCM is an important topic. You can read that post to get a short, academic, and human resources-based view of human capital management, but I think I might have missed the mark a bit. Almost three years later, it’s time for an update.

First, the human capital that we are talking about is real, living, breathing human beings. I think many would agree that when discussing people, relegating them to terms like assets and capital is cold and dehumanizing. So I’ll stay away from those terms as much as possible. But the fact remains that, as a group, human capital represents the largest and most important investment a company can make.

To bring the “human” to the forefront of human capital management (after all, it is the first word) is to understand that every organization depends on the people working in it to perform their work and contribute to the success of the company. It’s this contribution, or value, that is most important to the definition of HCM.

While every worker can perform a task or provide some type of contribution, those efforts might or might not provide value to the organization. In short, you have workers that provide a lot of value, some value, or no value. (You might even have workers that take away value.) It largely depends on who the workers are, where they are, and what they are doing.

So, I believe that the core of HCM is how you go about putting workers in a position to provide value.

This takes into consideration the value that workers bring to the organization. But what about the value the organization brings to workers? That’s where I believe human resources comes into play. It’s also where human resource management (HRM) and HCM sometimes overlap and get confused with each other.

HRM is the processes, procedures, and perhaps the hierarchy that a company puts in place to maintain an infrastructure that enables workers and management to work together to achieve company goals. It absolutely includes elements of HCM, and I would argue that one cannot exist without the other. But HRM is more about the day-to-day requirements of working, while HCM is more about maximizing the value from the work people do each day.

With this in mind, my updated definition of human capital management includes some elements of human resources but with a more discrete focus. HCM is the ongoing management of a firm’s most important asset — its workers — to ensure that workers provide maximum value in support of the organization’s strategic and operational objectives. This includes the employment, development, and utilization of workers, and the optimization of their work in alignment with organizational goals.

HCM is about making the most of the talent you have. There are many more mundane aspects of HCM that I hit on in my previous definition, but in retrospect I think that HCM is more about value and alignment than it is about simply putting people to work.

One last note: In my definition and throughout this post, I mention “workers,” meaning not just the company’s employees, but everyone who works for them. Today up to 25 percent of a company’s workforce can be temporary employees or a mix of different types of non-employees, such as temporaries, independent contractors, and consultants. These workers are part of the HCM mix and should be included in any and all efforts to maximize the contribution and alignment of a company’s workforce.