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Why is Human Capital Management “Very” Important?

Updated: Sep 1, 2021

Our employees are our greatest asset. Who wouldn’t agree?

For a variety of reasons, the field of human capital management has grown in popularity in recent decades. First is that individuals understand that an organization's greatest asset is its personnel. The second point is that for many businesses, the cost of their employees is their most significant expense.

As a result, human capital management (HCM) has become a driving force behind many new business practices, a rising number of human capital management software solutions, and a focus on human capital as a competitive advantage.

So, What is Human Capital Management?

Human capital management, or "HCM" for short, is a set of organizational strategies concerned with the acquisition, management, and growth of an organization's human workforce, or "human capital."

The purpose of human capital management (HCM) is to optimize and maximize an organization's economic, or commercial, value in order to obtain a competitive advantage. Human capital management that is effective allows the organization to pursue human capital objectives with success.

But, Why Does HCM Matter?

Human capital management is becoming increasingly important as a competitive advantage for smart leaders. According to the data, organizations that prioritize employee engagement, well-being, corporate culture, and development beat their competition.

Glassdoor's 2019 rankings of the "Best Places to Work," were evaluated in an article by App Economy: "Looking into the 20 Best-Ranked Public Firms over 10 years, 60% had beaten the S&P 500 (500 of the largest companies listed on stock​), and 91 percent had positive returns up to June 2019."

“The best places to work that trade openly have more than twice the returns of the S&P 500 over the last 10 years,” according to App Economy.

Employee engagement—a sense of being actively involved and excited about one's work and workplace—is linked to a wide range of business results and the overall performance of the workplace culture (according to the Gallup organization's 2017 State of the Global Workplace Report). They found that the majority of employees are disengaged at work; only 15% of persons working full-time for an employer are engaged at work globally.

Human capital, like other forms of capital, can be measured and developed and it delivers a return on investment (ROI). The report indicates how top quartile engagement companies outperform low quartile engagement companies.

  • Higher productivity: 41% lower absenteeism and 17% higher productivity

  • Lower turnover: in organizations with high employee turnover, highly engaged business units achieve 24% lower turnover

  • Better product quality: highly engaged business units experience 40% fewer quality incidents (defects).

  • Better customer experience: highly engaged business units achieve 10% higher customer metrics and 20% higher sales.

Human capital usage and engagement have been shown to have a direct impact on a variety of organizational KPIs (Key Performance Indicators), such as productivity, employee turnover, product quality, workplace safety, and customer satisfaction. It is crucial not just for the health and success of your company, but also for your ability to compete in an increasingly competitive world.

By making HCM a priority you will be able to attract, retain, and engage the talented, high-performing people you need to be successful, from finding the right talent, to onboarding and supporting the employee experience throughout the employee life cycle.



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