So, What is HCM?

Authored by Matt Hommel

What is Human Capital Management, right? HCM is a term that hasn’t become 100% mainstream . . . YET.

But before we dive into what HCM is . . . first, for explanatory purposes, it's almost exactly as important to get down to the very essence of “what is a business?” and here’s why:

 

What is a business? 

Simply said, a business is an organization of employees - human employees that work together to achieve common goals and serve a need. Some businesses are small with a simple organizational structure and only a few employees; while others are larger, meaning a more complicated structure &  more employees. No matter how big or small the organization is, employees are the lifeline of an organization. An organization simply cannot survive if there are no employees. Considered, each employee has the potential to contribute in their own way to the success and productivity of the organization as a whole. In this way, employees can be thought of as assets.

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Traditionally, asset was a term used primarily to describe financial capital or physical assets. Today, capital can be described as virtually any asset capable of furthering development & growth, or income in an organization. In this sense, Human Capital can be referred to as the value that employees bring to the organization to increase the bottom line.

As we always say:

“Your people are your most important assets”

Think about Human Capital Management as leveraging your most valuable assets, and likewise the asset that will by far bring the biggest ROI when done right. Considered, HCM is a business strategy, and it is an extremely competitive advantage when you know how to do it right.

Here’s how you can get started. . .

 Employee Lifecycle 

There are many responsibilities that come into play with employees. These responsibilities can be thought about in terms of a lifecycle. This lifecycle represents the critical aspects of the employee & employer relationship. Widely referred to as the Employee Lifecycle.

For a company that wants to recruit & retain the best employees, leverage their most important and powerful asset of all (their people!), and significantly elevate the performance & profitability of their business; some key responsibilities in regard to the employee lifecycle come into play.

Primarily, there are 6 crucial steps to consider when looking at the employee lifecycle:

  1. Attracting
  2. Recruiting
  3. Onboarding
  4. Developing
  5. Retaining
  6. Seperating

Each of these steps has their own degree of significance, and strategy of execution; each varying depending on the organization, their partners, and their unique needs. Like we said earlier, some organizations are smaller and therefore might have less needs or reserves to invest and grow their human capital. A bigger organization, most likely will have a more comprehensive Human Capital Management strategy. The importance of successful HCM remains across the board however, regardless of size. Likewise, for those who want to attract, develop, and retain the best employees, strategic HCM becomes highly important.

So let’s jump into these 6 steps . . .

1. Attracting: 

The relationship from employee to employer starts with finding qualified candidates. However, in order to do this you must understand that attraction happens well before you even have an open position. Consider this like your “employer brand” which is essentially a phrase coined in the 1990’s. Consider this brand, as what your organization is known for, not only in terms of what services you provide, and what the customers say; but also, what the employees say about it. Are you often recognized as a great place to work?

Furthermore, this is like your company's culture. What makes your place thrive, and appear to be a welcoming atmosphere that top talent would love to be a part of?

According to Glassdoor, companies that invest in employer branding are three times more likely to make better hires.

Like a good business knows how to market to their dream customers, you also have to know how to attract your dream candidates as well. You need to find ways to get your offers in front of the qualified candidates you want & need, whether this is through word of mouth, advertising, or online job postings.

Professional development opportunities, career growth, and an amazing benefits package help tremendously here. With Professional development, 87% of millennials state that professional development & career growth are highly important for them when it comes to choosing where to work. Furthermore, your benefits package is almost equally as important.

Considered, your compensation and benefits package should be about much more than just bonuses, snacks in the office, and a pingpong table. To attract and retain top talent, you’ll need a top-of-the-line package that suits your current and potential employees’ needs. Health benefits can play a huge role here. In fact, 72% of employees state that they would sacrifice perks for a better healthcare package. Furthermore, approximately 80% of employees said they would prefer benefits over a pay increase. Even more fascinating is that when you factor in age, these statistics get even more drastic. Moreover, the above statistic of 80% factors in all age groups of the workforce; however, when looking at younger employees aged 18-34, 89% stated they would much rather have good benefits over a pay increase.

But what if you can’t afford benefits you ask?

Luckily, things like PEO’s allow those with a smaller budget to offer amazing perks at a smaller cost.

In fact . . . Did you know? SMB owners who partner with a PEO, empower themselves to offer Fortune 500-level benefits to their employees, as opposed to a weak benefits package, or perhaps no benefits at all. As an SMB owner or small boutique firm, what would it mean to you if you never lost talented employees, because you offered an amazing benefits package that gave even large enterprises a run for their money?

As you can see, attraction begins way before the job is posted. It comes with giving the employees what they want, having a thriving & engaging culture, and creating incomparable value to your offer that top talent simply cannot say no to.

 2. Recruiting 

Now that you’ve attracted a strong applicant pool, it’s time to narrow down your selections to bring in the best candidates. Here is where it becomes important to refine your company’s hiring practices and ensure you hire the right person the first time around. This stage includes things like applicant tracking, qualifying, ranking, and screening applications, scheduling & conducting interviews, and performing background checks. All of these factors are very time consuming for businesses which, evidently, is why organizations struggle to find qualified high-performers.

This is why it becomes very important to invest in comprehensive technology to help untangle these complexities, as well as streamline the processes & efficiency of getting top talent up & running to increase business results. With the right hiring technology, service, and expertise, you can cut paperwork & shorten the hiring cycle from job openings, to listings, screening, reporting, and onboarding.

When it comes to sourcing top talent, you can also turn to the people who know your business best: your employees. According to Harvard Business Review & Linkedin research, referrals remain the top source for talent, accounting for up to 48% of new hires. It’s important to note, these are people who actually got the job (not just an interview). And in fact, employee referrals come with the highest conversion rate; furthermore, only 7% of these referrals apply, yet up to 48% get the job.

In terms of the quality of these hires - 88% of employers said that referrals are the #1 best source for above-average applicants.

Leveraging your employee’s professional networks is a great way to connect with high- performance & interested candidates. Aside from being more familiar with your company, referred employees have quicker, less expensive hiring timelines and better retention rates than applicants sourced from other channels. With the right employee referral program and applicant tracking system, you can attract top talent that will add to your culture and drive your company forward.

Due to these numbers, many companies even have an employee referral system, where employees can receive an additional credit per employee or candidate they refer.

It doesn’t end here though, one thing that is very important is to conduct effective background checks for your potential new hires.

Why’s that, you might ask?

Well, according to the Department of Labor, a bad hire on average costs about 30% of that employee's salary. On the lower end, this number is around $15,000 for smaller businesses.

However! What’s more staggering, is that according to The Undercover Recruiter, the cost of a tenured bad hire can be upwards of $240,000, result in a 40% loss of time, and a 32% loss of employee morale. I’m sure we can all agree on the negative impacts of employees who have terrible attitudes that infect everyone around them; the ones we often refer to as “a cancer to our organization”.

This goes without question, the impacts of things like theft, improper punch-in/punch-out practices, and a lot more; things that all can be avoided by running a simple background check.

A lot of services can offer comprehensive searches through databases such as:

 

  • National criminal database
  • Social security number verification
  • National sex offender registry
  • A-la-carte options to match your business needs
  • Form I-9 verification
  • Motor vehicle reports
  • Employment verification
  • Education verification
  • Drug testing
  • Healthcare sanctions

 

Given this, the recruiting phase of the employee lifecycle is one you do not want to ignore.

 

3. Onboarding 

Picture this scenario:

your first customer completes the transaction, they’ve already put money down so they're going to get their product regardless, but what is the process like for them during the delivery process

For the marketing folks… What does that whole buyer's journey look like?

It works the same way for your new employees. Human beings are human beings. The same way you onboard new clients because you want repeat buyers, or Clients For Life, is the same way you onboard your new hires so you can actually retain them.

So after recruiting & applicant tracking, comes this very essential factor in regard to first impressions & regulations for the new hire. We call this the Onboarding Phase. This involves things like - creating new hire custom communications, collecting forms such as I-9s, W-4s, State Tax Forms, information for acknowledgements, and much more.

With all this to do, many organizations do, in fact, struggle to effectively assimilate new hires into the organization WHILE ALSO maintaining compliance regulations.

While companies have to take care of all of this on top of trying to remain profitable & grow their business simultaneously, it becomes a lot of work. . . or WORSE, they skimp out on one or the other, which never truly works out over the long term. The reality is that companies fail to ever actually achieve their goals by taking this ‘either or’ approach to their talent.

Considered, one of the most important ways that organizations can improve the effectiveness of their talent management systems is by taking a more strategic approach to their onboarding. Onboarding, in essence, helps new hires adjust to social and performance aspects of their new jobs quickly and smoothly. This result should always be a priority for HR departments, or those in charge of the company's HR processes. In fact, in the United States, every year over 25% of the working population experiences career transitions. In Fortune 500 companies alone, about 500,000 managers take on new roles each year, and overall, managers begin new jobs every two to four years. Unfortunately, in the midst of all these transitions:

  • Half of all senior outside hires fail within 18 months in a new position.
  • Half of all hourly workers leave new jobs within the first 120 days.

 

In terms of the strategic advantage of a good onboarding strategy, research is very clear 90% of employees decide whether or not they will remain with a company after 6 months. While 1 out every 3 employees actually leave within the first 6 months.

Author's note: ONBOARDING should not be confused with ORIENTATION. . .  though oftentimes it is. 

In this sense, onboarding can more appropriately relate to the assimilation process of a new hire into the organization. Academic researchers who study onboarding also use the term organizational socialization to describe the full onboarding process.

  • When referring to this full assimilation process (or organizational socialization) you can set yourself up for success by setting milestones, such as 30, 60, 90 and 120 days on the job—and up to one year post-organizational entry—to check in on employee progress.

 

However, with such a long onboarding process, this doesn’t mean you make onboarding a very tedious process, just to make it last longer. That would just be asinine. Instead, you can focus on providing continuous learning opportunities on internal policies, as well as career growth/development plans.

Having a new hire create a development plan is a very effective way to get them to think about their future within the company, and increase retention rates. Coincidentally, this can also compel them to stay with you longer and finish out the whole onboarding cycle. As we’ve covered, most employees decide whether or not they will stay after the 6 month mark, so having a process already in place gives them something to look forward to, as well as something they are already actively committed to.

What’s fascinating, is that a report done by Consulting firm Booz | Allen | Hamilton, showed that companies that continue assimilating & onboarding a new hire for up to a year increase new hire retention by upwards of 25% as opposed to those with shorter onboarding cycles.

Furthermore, you also save a lot of time as well with a more strategic onboarding model. In fact, CareerBuilder notes that 42% of HR or hiring managers who don’t capture onboarding information electronically spend 3 hours or more per employee manually collecting and processing onboarding information. Furthermore, 16 percent spend five or more hours. This is all time that can be allocated back into REVENUE GENERATING activities, or creating a better experience for your employees.

A simple fix is to simply work to have onboarding start BEFORE the first day of work for your new hire.

If your new employee shows up for their first day and no onboarding has taken place, you’ve failed that new employee & you have failed your company's productivity & business results. This being said, it is essential to make sure administrative work for the new employee is absent on day 1. That means you need to get all that administrative work out of the way before the new hire begins day 1 of work. There are a few ways to accomplish this but the best way is to utilize technology and have at least a portion of your onboarding completed online. This way, you can actually spend time training the new hire, and getting them up to speed to increase business results at a much faster rate!

The effects are extravagant when you take a more strategic approach to your onboarding phase in the employee lifecycle. In fact, companies who take an onboarding approach as described above, see 49% more engagement in their employees, 46% more confidence, 45% greater trust, and 38% higher morale. Onboarding is a competitive advantage.

Organizations with a strong onboarding process improve new hire retention by 82% and productivity by over 70%.

 

Additional Note: Human Resource Management System (HRIS)

What’s an HRIS?

Well… we need to have a way of keeping track of all these new hire documents & other things in one centralized location. Things like company & employee compliance documents; total compensation summaries; ways to administer self, peer, and manager performance reviews (and keep track of those KPI’s); as well as, maintaining training curriculums that have been measured to be most effective. This is what we refer to as our Human Resource Information System (HRIS). Best practice is to do this digitally - losing important paperwork we’ve discussed will not keep you safe from the DOL, nor does it help you maintain high levels of productivity & effectiveness.

An HRIS is basically a filing cabinet of the most important information relating to your people. This is where you can store critical electronic documents such as employee handbooks, YTD employee engagement surveys (are you running these?), provide total compensation summaries, and much more.

The HRIS factor is something critical because it helps us effectively take care of the remaining employee lifecycle stages in a much more effective way.

 4. Developing 

40% of employees who receive poor job training leave their positions within the first year. (Forbes, 2017)

After we have gotten our new hire onboarded, it’s important that we strive to develop them continuously. Not just for us as businesses, but also for them as well.

Why is this?

Because, most employees want to grow personally & professionally. It is a human need. By giving them options to do so, we significantly increase their engagement, make them want to go that extra mile for us, and increase retention & loyalty. Most importantly though, in terms of business strategy, we know the importance of talent and having people competent at their positions & what that means for our bottom line.

One of my lacrosse coaches once said to me “We don’t recruit All-Americans, we create them.”

I thought that was one of the most powerful things I have heard when it comes to developing the people you already have.

It speaks on so many levels for your businesses success when you can take C-level talent & bring it to A-level talent, or better yet - take the “greats” and turn them into the “greatest of all times”.

If you’ve ever read the best seller Good to Great by Jim Collins, you’ll know that a majority of the best leaders are not hired from the outside. It’s been shown that a majority of the great CEOs are those who have been with the company the longest, learned the ins & outs of the business and industry, and developed their competence in that arena. Furthermore, it is safe to say that somebody very tenured at a company likely cares tremendously about the organization's mission & values - which is imperative for someone leading that organization's people.

When it comes to actually developing these competencies, there are several ways you can ensure your people have the opportunity to get better day in & day out. Things like online learning platforms, performance management systems, conference stipends, lunch and learns, tuition reimbursement, and mentorship programs are just some of the many ways you can take an active approach towards developing your talent to new heights.

Reimbursements & stipends also encourage employees to continue growing their skills and core competencies at their own convenience too. In this way, it’s more of an opportunity and reward to grow how they want, rather than a “mandatory training”.

While all of this does sound amazing, some managers may be afraid to offer learning & growth opportunities to top performers in fear that they’ll lose some talented employees, or invest in people who leave. But you need to also ask:

“How much does it cost us to not train them?”

Lack of competency, productivity, engagement, and high turnover are very costly factors for your business.

By holding employees TOO closely, you send the message that you care more about productivity than that employee’s best interests. You can also encourage employees to pursue their interests with passion projects and cross-departmental projects so they can grow and learn… in the event that they’re feeling restless in their current roles.

Also, here’s the kicker - MOST employees QUIT because they believe they’re in dead-end jobs with no option for lateral or vertical movement. Over 70% of high-retention-risk employees say they have to leave their company in order to advance their careers. To avoid this, you can create detailed career ladders and frameworks to define the standard skills, competencies, and level of experience each position requires. This increases transparency around the expectations for promotions and lateral career movements and helps your employees set a career trajectory; furthermore, it helps them get crystal clear on, and establish their professional goals.

By investing more upfront, you also save a bunch more down the road, in terms of costs, as well as the increased productivity & retention benefits you gain from constantly developing your people.

 5. Retaining 

This is the stage where every employer focuses on retaining their top and most-prized employees. Employers should keep in mind that their employees are happy and challenged in the organization with new tasks and projects. Essentially, this is the opposite of turnover & dead-end jobs, and what you want to strive for.

Following up on our managers' fear from earlier - “What happens if I train talented employees & they leave?” To which we did say it costs more to not train them, however, if we can still retain them that's a win-win for everybody.

So why focus so hard on retaining employees? For starters, replacement is extremely costly. According to Deloitte (2015), total replacement costs associated with employee turnover can be as high as 150-200% of that employee’s annual salary.

This ranges from everything to the amount of lost productivity from losing the position, having to update your records both internally & through the state, recruit somebody else, interview somebody else, onboard somebody else, train & develop somebody else, and much more. These numbers also get much more staggering when looking at the variability of positions; for instance, Washington-based Corporate Leadership Council shows that the direct expenses of employee turnover is around 176% for IT professionals, and a WHOPPING 241% for middle managers! Let’s not even get started on the C-suite either.

As we said earlier, 87% of millennials state that professional development & career growth are highly important for them when it comes to choosing where to work. Just like how this is very important during the onboarding, and developing process. It is also a very important factor when it comes to retaining your employees. A personal or professional development plan is very effective in this circumstance. Simply asking the employee what they want, and aspire to be, and giving that exactly to them is one of the best ways you can foster employee loyalty and hang on to your stars. Allowing high-performers to continually grow in the ways they want that still supports the organization’s mission, vision, and values is an unbelievably powerful approach.

Beyond growth plans, etc. Transparency & recognition are huge factors here when it comes to retaining employees.

Transparency

Nothing inspires employee loyalty and trust like organizational transparency. Open door policies, executive office hours, and frequent company all-hands meetings are great ways to keep employees in the loop on strategic initiatives & business decisions, and make them feel more like a valued member of the team. Objectives & Key Results (OKRs), are another great way to show employees how their work contributes to larger business goals and impacts the bottom line.

Employees want to know what the direction of the company is, so communicate it to them continuously. But beyond just the communication of the organization's strategic initiatives; more importantly, employees want to know how their contributions are directly contributing to the greater good. This provides them with a higher sense of purpose, which is very inspiring for them. To do this, it is important to give praise and recognition when employees are actively contributing to the greater good.

Recognition

Give credit where credit is due. Research conducted by SHRM, showed that companies that approached employee recognition strategically had nearly 25 percent lower turnover rates. Additionally, a Forbes study showed companies that fostered a “recognition-rich culture” enjoyed a 31 percent lower voluntary turnover rate than companies with poor employee recognition programs.

There are many ways you can work to retain your people, the best bet is to come from a point of transparency. Keep the direction of the company clear, see what your people really want, and do your best to give them exactly that in a way that still supports the organization's goals. It’s a win-win for everybody.

 6. Seperating 

Finally we have the Separating Phase of the employee lifecycle. This is the final stage of the employee life cycle, whereas the employee leaves due to a new job, retirement, layoffs, personal reasons, or termination for violating company policy. In any case, the HR department must follow proper procedures and documentation in this separation process.

Typically, HR will inform the employee about final pay, benefits, etc. Offboarding is critical for helping employers maintain a strong corporate brand (remember Phase 1: Attraction?) and gain valuable feedback from existing employees. This information, in turn, helps companies better retain other employees and improve HR processes for the future. During this phase, we can be talking about everything to 401(k) plans & documents, reviewing investments and performance, compliance test results, regulatory requirements such as state unemployment insurance (SUI), and COBRA (The Consolidated Omnibus Budget Reconciliation Act).

It’s very clear to have a grasp on employees at the separation phase, regardless of how they are leaving. Whether they are leaving due to retirement, family situation, career move towards a better fit, quitting, or getting fired. This matters. On the bright side, if they are leaving to move on to a better fitting career position for their skills, personality, etc., having a solid relationship throughout this phase of the employee lifecycle is important because of something called word of mouth. Remember, just like you want customers giving you referrals and raving on their social media about their experiences with you, you want the same for your talented employees who are leaving.

Remember when we talked about the importance of referrals during the Recruiting phase??

The same rules apply to not only those inside the organization, but also those on their way out.

For instance, if this is one of your most valued contributors leaving for retirement, maybe they have a friend, daughter, or grandson who will be an elite-performer as well, or they know a bunch of others within that category; wouldn’t it be great if they told these talented people with high-potential “I had the best career ever at this company, go join them yourself!”  In fact, did you know that almost 70% of new hires come from employee referrals? We also know that referrals tend to yield candidates of higher quality. So much so that many organizations have a referral program in place to encourage their staff to help fill vacancies by referring suitable friends and family.

On the other hand, even a bad employee, one who is quitting, or is fired, etc. It’s good to leave them on the best terms possible as well. You don’t want an employee giving a bad reputation to your brand over something you might have had a little bit of control over on their way out. Granted, we don’t have 100% control over these things, if they are quitting - try to find out why, what did they like/dislike about working with you? Your exit interview or exit survey could reveal some light for future hires and internal procedures. If you needed to fire them, make sure you of course did it legally, and ethically, and try to come more from a position of “it just didn’t work out, here’s why” rather than “you were a total nightmare, go vanish”.

Human’s psychologically will many times defend their wrong doings as an external force, not their own mistakes. These misrepresentations are simply just what’s called a heuristic in psychology. Somebody who is fired 99% of the time is going to commit the infamous Fundamental Attribution Error. Meaning in their head, they probably weren’t wrong for being fired, some other external force was the cause of it (even though we know this probably wasn’t the case).

Regardless of the circumstances, it’s on you to manage this final phase of the employee lifecycle, that way you are setting yourself up for future success. A Study done by Work Institute (2016), showed that 89% of employers think employees leave for money. But only 12% of people actually do. In reality, 75% of people voluntarily leaving aren't leaving their jobs, they're leaving their bosses.

Therefore, Always know what is happening when an employee is leaving, whether it’s peaceful retirement, career moves, quitting, or termination.

 

Recap

Given all of this, organizations deal with a lot of responsibilities when it comes to the management of their employees. The end goal with HCM is to ensure that employees are positioned to help increase the cumulative success of the organization as a whole. This certainly can become overwhelming, especially for an organization trying to attract, develop, engage, retain, and manage the most important asset of all - their people. But with proper management, the payoffs are tremendous.

So in the end, what is HCM?

In corporate speak, it can be described in many cases as “a set of practices around the management of a company's workforce”.

More importantly, though, it’s not how you define it, but rather what it does. Most importantly, Human Capital Management, is being able to unleash the raw power of your company's most important asset - your people.

In this case, my simple definition for you is: Managing & maximizing your most valuable asset - your people =)

Thanks for reading!

If you feel like you got a lot of value from this article & would like to learn even more to help your business, be sure to click this link right here and schedule a chat with me. I’d be more than happy to answer any of your human capital management questions for 100% free to help you better manage your most valuable asset - your people =) 

Matt Hommel

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