SHRM Unit 4: Human Capital Management

HUMAN CAPITAL MANAGEMENT:

 Human capital management (HCM) is a set of practices and tools used to attract, recruit, train, develop, manage
and retain employees to achieve business goals.
 Its purpose is to optimize the performance and efficiency of a company's staff to deliver results aligned with
organizational objectives.
 Effective Human Capital Management results in:
 Hiring the right talent
 Having all the necessary skill sets in the company’s workforce
 Managing employees effectively
 Increasing productivity

The 4 Pillars of HCM Best practices: AACP

1. Alignment: If your company goals focus on differentiation, your HCM strategy should center on hiring the most
innovative product developers with a proven track record.
2. Automation: Invest in the right technology to automate processes for planning, payroll, workflows, reporting,
and analytics to increase accuracy and productivity.
3. Communication: Build a culture of trust by proactively and openly communicating with employees, especially
during times of transition.
4. Personalization: Check in with each employee to ensure they’re engaged and progressing in their career.

Components of HCM:

1. Talent Management: Nurturing employees to develop new skills and enhance work performance continually.
2. Recruitment and Hiring: Attracting and hiring talent to meet organizational needs effectively.
3. Onboarding and Training: Introducing new employees to the company culture, job requirements, and providing
training to enhance performance.
4. Benefits Administration: Managing workforce benefits to simplify planning and decision-making.
5. Time, Attendance, and Payroll: Critical for payroll accuracy and compliance, tracking hours worked, leave
applications, and automating payroll processes.
6. Employee Service and Self-Service: Offering self-service systems for time tracking, HR help desks, and employee
portals.
7. Reporting and Analytics: Providing actionable insights to improve the work environment and achieve
organizational objectives.

Benefits of HCM:

 Matching the right employee to the right job, enhancing workforce productivity, and reducing costs.
 Improving efficiency by placing employees in roles where they can perform optimally.
 Streamlining HR functions, consolidating systems, using analytics for informed decisions, and automating
processes.
 Strengthening employee development and career planning through training and feedback mechanisms.

Need of HCM:

1. Maximizing Employee Potential: HCM aims to attract, recruit, train, develop, and retain the best employees to
achieve short- and long-term organizational objectives. By investing in employees' growth and development,
organizations can harness their full potential, leading to improved performance and productivity.
2. Strategic Alignment: Effective HCM ensures that HR strategies are aligned with overall business goals. This
alignment ensures that human resources are utilized in a way that directly contributes to the organization's
strategic objectives, enhancing its competitiveness and sustainability in the market.
3. Talent Acquisition and Retention: In a competitive business environment, attracting and retaining top talent is
crucial for organizational success. HCM helps in identifying, attracting, and retaining talented individuals by
creating an environment that promotes employee development, job satisfaction, and loyalty.
4. Enhanced Organizational Performance: HCM facilitates the optimization of workforce performance and
efficiency by matching employees' skills and talents with suitable roles within the organization. This ensures that
employees are engaged and motivated to contribute effectively to the achievement of organizational goals.
5. Cost Efficiency: Effective HCM practices can lead to cost savings for organizations. By reducing turnover rates,
optimizing recruitment processes, and improving employee productivity, organizations can achieve significant
cost efficiencies in areas such as recruitment, training, and talent management.
6. Adaptability and Innovation: In today's rapidly changing business landscape, organizations need to be agile and
innovative to stay competitive. HCM helps in creating a culture of continuous learning, creativity, and innovation
by investing in employee development and fostering a supportive work environment.
7. Compliance and Risk Management: HCM ensures that organizations comply with labor laws and regulations,
reducing the risk of legal liabilities and penalties. By implementing fair and equitable HR practices, organizations
can mitigate risks related to employee grievances, discrimination, and non-compliance.

HCM vs HRM:

Human Capital Management (HCM) Human Resource Management (HRM)

HCM is a more strategic and forward-thinking
approach to managing employees.
Takes a holistic and integrated approach to
managing talent, incorporating various HR
functions.
Emphasizes the development and utilization of
employee skills and knowledge to drive
business performance.
Puts a premium on data analytics and
technology to make informed decisions.
Views employees as an investment in the
organization’s future success.
HRM is more focused on the administrative
tasks related to managing employees.
Addresses the day-to-day activities, such as
payroll, benefits, and compliance.
Emphasizes compliance with labor laws and
regulations.
Puts a premium on maintaining personnel
records and ensuring the organization is
compliant with applicable laws.
Views employees as a cost to the organization.

 HUMAN CAPITAL:

Human capital refers to the collective skills, knowledge, experience, and abilities possessed by individuals within an
organization or society that contribute to their economic productivity and value. It encompasses both tangible assets
like education and training as well as intangible qualities such as creativity, problem-solving abilities, and emotional
intelligence.

Concept of Human Capital:

 Intangible Asset: Human capital is an intangible asset that cannot be quantified in monetary terms but holds
significant value for organizations and economies.
 Investment Perspective: Similar to physical capital, human capital requires investment in the form of education,
training, and development to enhance its value over time.
 Management and Optimization: Effective human capital management involves strategic workforce planning,
recruitment, training, and retention efforts to maximize the potential of employees.
 Economic Value: Human capital contributes to economic growth and development by increasing productivity,
driving innovation, and improving the overall quality of the workforce.
 Continuous Development: Human capital is not static; it requires continuous investment and development to
adapt to changing business environments and technological advancements.

Need for Human Capital:

 Enhanced Productivity: Human capital drives productivity and innovation within organizations, leading to
increased efficiency and competitiveness.
 Strategic Advantage: Companies with skilled and knowledgeable employees gain a competitive edge in the
marketplace, as human capital is a source of sustainable advantage.
 Adaptability: In today's dynamic business environment, human capital enables organizations to adapt to
technological advancements, market changes, and industry disruptions.
 Organizational Growth: Investing in human capital fosters employee growth and development, which in turn
fuels organizational growth and success.
 Economic Development: Human capital is vital for economic development at both individual and societal levels,
driving innovation, entrepreneurship, and overall prosperity.

 INTELLECTUAL CAPITAL:

Intellectual capital refers to the collective knowledge, skills, experience, and proprietary information possessed by a
company's employees, which may confer a competitive advantage. It encompasses both tangible and intangible
assets that contribute to a company's value and ability to generate profits.

Concept of Intellectual Capital:

 Intangible Asset: Intellectual capital comprises intangible assets such as human capital (employee knowledge
and skills), structural capital (organizational processes and infrastructure), and relational capital (business
relationships and reputation).
 Value Creation: It represents the value created by a company's employees, processes, relationships, and
intellectual property, which contributes to its competitiveness and profitability.
 Measurement Challenges: Measuring intellectual capital is subjective and challenging due to its intangible
nature. Methods such as the balanced scorecard, market capitalization, return on assets, and the Skandia
Navigator may be used to assess intellectual capital.
 Types of Intellectual Capital: Intellectual capital can be categorized into human capital (employee knowledge and
skills), structural capital (organizational processes and infrastructure), and relational capital (business
relationships and reputation).
 Examples of Intellectual Capital: Examples include employee expertise, training programs, patents, brand
reputation, customer relationships, and organizational culture.

Need for Intellectual Capital:

 Competitive Advantage: Intellectual capital provides a competitive edge by enabling companies to innovate,
develop new products, and deliver superior services.
 Capacity for Growth: It represents a company's capacity for growth and profitability through its employees'
expertise, relationships, culture, reputation, and processes.
 Innovation and Problem-Solving: A well-trained and skilled workforce can innovate, solve complex problems, and
adapt to changing market conditions.
 Market Visibility and Reputation: Strong relationships with stakeholders, including customers, investors,
suppliers, and partners, enhance a company's visibility, reputation, and market share.
 Financial Performance: Intellectual capital contributes to financial performance by improving operational
efficiency, reducing costs, and increasing revenue.
 SOCIAL CAPITAL:

Social capital refers to the value derived from social relationships, networks, and interactions within a community or
organization. It encompasses trust, reciprocity, shared norms, and mutual support among individuals or groups.
Social capital enables cooperation, collaboration, and resource sharing, leading to both tangible and intangible
benefits such as improved productivity, well-being, innovation, and overall social cohesion. It emphasizes the
importance of social networks in achieving common goals, accessing resources, and creating positive outcomes.

Need for Social Capital:

 Organizational Prosperity: Social capital enhances organizational success by fostering trust, collaboration, and
effective communication among employees.
 Resource Access: It provides access to valuable resources, information, and opportunities through personal
connections and networks.
 Healthy Work Environment: Strong social networks and relationships lead to higher job satisfaction, employee
well-being, and overall morale.
 Innovation and Adaptation: Social capital promotes innovation, problem-solving, and adaptability by facilitating
knowledge sharing and idea generation.
 Enhanced Performance: It contributes to improved productivity, teamwork, and performance by fostering a
supportive and cohesive work culture.

Concept of Social Capital:

 Multidimensional Nature: Social capital encompasses various dimensions, including bonding (within-group
connections), bridging (across-group connections), and linking (across different socioeconomic groups).
 Value of Social Networks: It emphasizes the importance of social networks in achieving common goals, sharing
resources, and creating positive outcomes.
 Positive Outcomes: Social capital leads to tangible benefits such as favors, useful information, innovative ideas,
and future opportunities, as well as intangible benefits like trust, respect, and shared identity.
 Application in Business: In business contexts, social capital contributes to success by building trust, mutual
respect, and shared values among employees, as well as facilitating networking, collaboration, and knowledge
sharing.
 Measurement Challenges: Measuring social capital can be subjective and challenging due to its qualitative
nature and diverse manifestations across different contexts. However, its impact on organizational performance
and social cohesion is widely recognized.

Key Takeaways:

 Social capital refers to the value derived from social relationships and networks within communities or
organizations.
 It is essential for organizational prosperity, resource access, innovation, and employee well-being.
 Social capital has multiple dimensions, including bonding, bridging, and linking, and contributes to positive
outcomes such as trust, collaboration, and shared identity.
 Despite measurement challenges, recognizing and leveraging social capital is crucial for achieving success in both
social and business contexts.
 ORGANIZATIONAL CAPITAL:

Organizational Capital refers to the intangible assets within an organization that contribute to its productivity,
efficiency, and overall success. It encompasses elements such as the organization's culture, knowledge management
systems, intellectual property, processes, and relationships with stakeholders. Essentially, it represents the collective
knowledge, skills, and capabilities embedded within an organization that drive its performance and competitive
advantage.

Need for Organizational Capital:

 Competitive Advantage: Organizational Capital provides a unique advantage to companies by enabling them to
leverage their internal resources effectively, thereby outperforming competitors.
 Innovation and Adaptability: It fosters innovation and facilitates the organization's ability to adapt to changing
market conditions and technological advancements.
 Employee Retention and Engagement: A strong organizational culture and effective knowledge management
systems enhance employee satisfaction, leading to higher retention rates and increased engagement.
 Operational Efficiency: Well-defined processes and systems streamline operations, reduce inefficiencies, and
improve overall productivity.
 Stakeholder Relationships: Positive relationships with stakeholders, including customers, suppliers, and
investors, are nurtured through effective management of organizational capital.

Concept of Organizational Capital:

 Tangible vs. Intangible Assets: While tangible assets like machinery and equipment are essential, intangible
assets such as organizational capital are increasingly recognized as critical drivers of organizational success.
 Strategic Focus: Organizational capital management is a strategic imperative for organizations, requiring
deliberate efforts to develop, nurture, and leverage these intangible assets.
 Knowledge Management: Effective knowledge sharing and management practices are central to enhancing
organizational capital. This involves capturing, storing, disseminating, and applying knowledge across the
organization.
 Culture and Leadership: Organizational culture and leadership play pivotal roles in shaping and fostering
organizational capital. A culture of collaboration, learning, and innovation is conducive to its development.
 Measurement and Evaluation: While intangible, efforts should be made to measure and evaluate organizational
capital using suitable metrics and frameworks to assess its impact on organizational performance and value
creation.
 BALANCE SCORECARD: The 80/20 for SHRM Professionals

The balanced scorecard (BSC) is a strategic management tool developed by Robert Kaplan and David Norton in the
early 1990s that helps assess an organization's performance beyond just financial metrics. It's designed to help
organizations translate their vision and strategy into a set of measurable objectives and performance indicators. The
term "balanced" reflects its focus on incorporating both financial and non-financial measures to evaluate
organizational performance comprehensively.

Here's a breakdown of the key concepts you need to understand as an HR professional:

The Four Perspectives (80%)

The BSC uses four perspectives to evaluate an organization's health. Understanding these objectives within each
perspective is crucial for HR to set goals and demonstrate its strategic contribution.

1. Financial Perspective (Focus: Shareholder Value)

- Objectives: Increase profitability, maximize return on investment (ROI), control costs.
- HR Role: Ensure talent and processes contribute to financial goals. Examples include cost-effective training
programs and recruitment focused on high-performing employees.
- Metrics: Revenue growth, profitability, cost-per-hire.

2. Customer Perspective (Focus: Customer Satisfaction)

- Objectives: Enhance customer satisfaction, loyalty, and market share.
- HR Role: Develop a customer-centric workforce through training and performance management. Examples
include customer service skills development and programs that foster a culture of responsiveness to customer
needs.
- Metrics: Customer satisfaction scores, customer retention rate, market share.
3. Internal Business Process Perspective (Focus: Efficiency and Effectiveness)
- Objectives: Streamline processes, improve quality, and drive innovation.
- HR Role: Design efficient HR processes. Examples include implementing streamlined recruitment systems and
developing effective performance management systems.
- Metrics: Cycle time for HR processes, defect rates in HR tasks, number of process improvement initiatives
launched by HR.

4. Learning and Growth Perspective (Focus: Adaptability and Improvement)

- Objectives: Foster a culture of learning and continuous improvement, develop employee skills and knowledge.
- HR Role: Invest in employee development through training programs and create a learning environment.
- Metrics: Employee satisfaction scores, training completion rates, number of employee-driven innovation ideas.

The Big Picture (20%):

1. Strategy Map (Seeing the Connections):

Imagine the BSC as a roadmap for achieving your organization's strategic goals. The strategy map visually depicts
how initiatives within each perspective contribute to achieving these goals. It's like connecting the dots between
different parts of the organization. Here's what HR professionals should know about strategy maps:

 Visual Representation: The map typically uses arrows to show cause-and-effect relationships. For example, an
arrow might connect "employee training" (learning & growth) to "improved customer service skills" (customer
perspective), which ultimately leads to "increased customer satisfaction" (financial perspective).
 HR Alignment: HR should ensure its programs align with the strategy map. This means developing initiatives that
support achieving goals in other perspectives.
 Example: If the organization has a growth strategy aiming to expand into new markets, HR could develop a
leadership development program to equip managers with the skills necessary to lead and grow new teams.

2. Metrics and Targets: Quantifying Success (Measurement):

While the strategy map shows the connections, metrics and targets provide the specific measurements for success.
Each perspective has its own set of metrics, and HR should focus on those relevant to its function. Here's how
metrics and targets work in the BSC framework:

 Defining Metrics: These are quantifiable measures that track progress towards achieving objectives within each
perspective. Examples of HR metrics include employee turnover rate, training completion rates, and employee
satisfaction scores.
 Setting Targets: These are specific, achievable goals for each metric. Targets should be challenging but realistic.
For instance, aiming to reduce employee turnover by 5% in the next year might be a good target.
 HR Demonstration: HR should track relevant metrics and demonstrate how its practices impact them. By
showing how HR initiatives influence these metrics, HR professionals can showcase their strategic contribution
to the organization's success.

By focusing on objectives within these four perspectives and effectively measuring progress, HR professionals can
use the balanced scorecard to:
 Align HR Strategy: Ensure HR practices directly support the organization's overall goals.
 Communicate Value: Demonstrate the strategic contribution of HR to the business through data-driven insights.
 Drive Continuous Improvement: Use data to identify areas for improvement and refine HR practices for better
results.

 THE HR SCORECARD:
 The HR Scorecard is a strategic HR measurement system designed to measure, manage, and improve the
strategic role of the HR department.
 It focuses on leading HR indicators of business performance, which are metrics that predict future business
growth and are aligned with business strategy.
 It helps HR professionals to quantify the impact of HR initiatives on organizational performance and demonstrate
their contribution to achieving business objectives.
 The concept revolves around aligning HR activities with business strategy, focusing on leading HR indicators (HR
deliverables or KPIs) that predict future business growth.

Creating an HR Scorecard:

1. HR Strategy Map: Start by creating an HR strategy map that connects HR practices to business outcomes.
Identify how HR contributes to strategic goals.
2. HR Deliverables: Define HR deliverables or KPIs that measure strategic goals. For example, if the strategic goal is
to become a top employer, HR deliverables could include metrics like lead time for hiring and quality of hire.
3. HR Policies, Processes, and Practices: Develop high-performance work systems (HPWS) consisting of policies,
processes, and practices that support HR deliverables. These should create synergies to enhance effectiveness.
4. Aligning HR Systems: Ensure that HR systems are aligned with strategic goals. This involves integrating HR
practices to create synergy and avoiding trade-offs between different HR objectives.
5. Creating HR Efficiencies: Focus on creating efficiencies that support strategic HR objectives, even if it means
investing more resources. For example, investing in assessments and employer branding projects to increase the
quality of hire.

Implementation Steps:

1. Goal Setting: Define clear goals and objectives aligned with company strategy.
2. Benchmarking: Establish specific and measurable benchmarks.
3. Data Collection and Analysis: Use tools like spreadsheets and HR analytics to collect and analyze relevant data.
4. System Alignment: Ensure that HR systems are aligned with organizational goals to facilitate data sharing and
reporting.
5. Integration and Big Data: Integrate HR solutions with external applications and leverage big data analytics to
generate meaningful insights.

Benefits of HR Scorecard:

 Alignment: It ensures that HR activities are aligned with organizational goals, improving overall strategic
alignment within the company.
 Measurement: The HR Scorecard provides a framework for measuring the effectiveness of HR initiatives and
their impact on organizational performance.
 Data-Driven Decision Making: By focusing on leading HR indicators linked to business strategy, it enables HR
professionals to make informed, data-driven decisions.
 Strategic Role of HR: It helps HR departments move beyond administrative tasks to become strategic partners in
driving business success.
 Efficiency: Although it may require sacrificing traditional HR focuses on cost efficiency, the HR Scorecard
ultimately improves organizational efficiency by focusing on strategic effectiveness.
 DIFFERENCE BETWEEN THE HR SCORECARD AND BALANCED SCORECARD:

The HR Scorecard and Balanced Scorecard are both strategic measurement tools used by organizations to align
activities with strategic objectives and measure performance. While they share similarities, they serve different
purposes and focus on different aspects of organizational performance. Here's how they differ:

 Purpose:
- HR Scorecard: The HR Scorecard specifically focuses on measuring, managing, and improving the strategic role of
the HR department. It aligns HR activities with organizational goals and assesses HR's contribution to achieving
business objectives.
- Balanced Scorecard: The Balanced Scorecard is a broader strategic management tool used to translate an
organization's mission and vision into a comprehensive set of objectives and performance measures. It
encompasses financial, customer, internal process, and learning and growth perspectives to evaluate overall
organizational performance.

 Scope:
- HR Scorecard: The HR Scorecard primarily concentrates on HR-related metrics, such as employee retention,
recruitment efficiency, training effectiveness, and employee satisfaction. It focuses on how HR activities
contribute to organizational success.
- Balanced Scorecard: The Balanced Scorecard considers multiple perspectives beyond HR, including financial
performance, customer satisfaction, internal business processes, and organizational learning and growth. It
provides a holistic view of organizational performance across various dimensions.

 Focus:
- HR Scorecard: The HR Scorecard emphasizes HR-specific objectives and measures that directly impact HR
outcomes and organizational success. It helps HR professionals demonstrate their value and contribution to
strategic goals.
- Balanced Scorecard: The Balanced Scorecard takes a balanced approach by considering financial, customer,
internal process, and learning and growth perspectives. It aims to provide a comprehensive view of
organizational performance and ensure alignment with the organization's strategic priorities.

 Audience:
- HR Scorecard: The primary audience for the HR Scorecard is HR professionals and organizational leaders
responsible for HR strategy and management. It helps them assess HR effectiveness and make data-driven
decisions to improve HR practices.
- Balanced Scorecard: The Balanced Scorecard is intended for a broader audience, including executives,
managers, employees, and stakeholders. It provides a framework for communicating strategic objectives and
performance across different levels of the organization.
-

Aspect HR Scorecard Balanced Scorecard

Translates organizational mission and vision
Focuses on measuring, managing, and into comprehensive objectives and measures
Purpose improving HR's strategic role. across multiple perspectives.
Primarily HR-related metrics (e.g., retention, Encompasses financial, customer, internal
Scope recruitment). process, and learning and growth perspectives.
Emphasizes HR-specific objectives and Takes a balanced approach across various
Focus measures. organizational dimensions.
Audience HR professionals and organizational leaders. Executives, managers, employees, stakeholders.