Human Capital Management (HCM) - Meaning & Definition

Published by MBA Skool Team, Last Updated: December 16, 2015

What is Human Capital Management (HCM) ?

Human Capital Management (HCM) is a set of human resource practices focused towards providing specific competencies to the employees of an organisation. The steps adopted for implementation of HCM are three-fold:

  1. Workforce acquisition: This includes the recruitment and selection process, focussed on selecting the employee with the right organisational fit.
  2. Workforce management: Mapping the roles and responsibilities of employees, and review of the same.
  3. Workforce optimisation: Timely skill and compensation up-gradation of the employee.

Stated more informally, just as a capital is a resource of the company intended to provide future benefits, this concept treats the personnel of an organisation in a similar manner. The employees must not be treated as mere manpower. They should be trained and motivated so as to harness their best efforts out of them. It is the responsibility of every senior manager to ensure timely growth and development of each of his subordinate employees. This practice is implemented across every level of the organisation. Some components for practice of effective HCM are:

  1. Workforce planning
  2. Compensation planning
  3. Competency management
  4. Performance management
  5. Learning and training
  6. Contingency workforce management

Today Human Resource Management has evolved into Human Capital Management or HCM. It is an approach that treats the employees not just as resources, but as assets or human capital. The knowledge, skill, expertise and values that an individual brings with him/her to the are the resources that can be improved by investment and used in the same way as other assets are.


Unlike traditional practices where human resource is considered as a cost, HCM recognizes them as investors who bank their knowledge and skill to provide value and profit to the organization.


Organizations do not own these assets, but rent them from the employees. Therefore, they are in constant threat of being lost in case the employee exits the organization. Hence must be valued and nourished for deriving the benefits properly.

This term is particularly relevant for the IT industry which runs only on its knowledge base.


Characteristics of HCM:

• Focuses on the people of the organization and also the knowledge they carry

• Uses technology strategically; develops and evolves its human capital along with changing technology

• Focuses on building networks and relationships rather than hierarchies and structures

• Preference is given to use of solutions that best fit the situation rather than standard procedures followed

• Organizational goals are achieved by aligning the business strategies with the available human capital.

• Unlike HRM, which works on setting short term goals, HCM focuses on long term objectives

• Using external, informal and strategic benchmarking

• HR acts as a strategic business partner


Difference between HRM and HCM:



Employees are assets to be valued and preserved

Employees are not company’s property; they are investors (of the knowledge belonging to them)

Cost centric approach

Profit centric approach

Focuses on people

Focuses on people and their knowledge

Reports to investors and stakeholders

Reports to board, managers and employees

Added value

Created value

Short term objectives

Long term objectives



Hence, this concludes the definition of Human Capital Management (HCM) along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

Browse the definition and meaning of more similar terms. The Management Dictionary covers over 2000 business concepts from 5 categories.

Continue Reading:

Share this Page on:
Facebook ShareTweetShare on Linkedin