What is Human Capital Management? Learn with an Example.

Human Capital Management (HCM) is one of those nebulous terms in the talent management conversation. Is it competency management? Is it recruiting and succession planning? Is it streamlining the daily HR tasks essential to organizational survival?

The answer: Yes.

If you’re still scratching your head, maybe it will help to look from a different angle. It’s not so much, what HCM is, but rather, how HCM can be applied to make your business run better. There is a difference between traditional personnel management and HR administration and HCM.

HCM is better understood as a decision science than as a thing. It’s what finance is to accounting, and marketing is to sales. It’s a new way of thinking about where, when, and how to invest in people to make employees increasingly better at delivering targeted value to clients.

Rather than a technical explanation of HCM, I’d like to flesh out the science through a simple case study.

An Example of HCM in Action

How about an example. Say I’m a small manufacturer in a highly technical industry, and my value proposition is delivering a custom tool to my clients that is built to scale and delivered on time.

Value Proposition: Delivering custom tools to clients that are built to scale and delivered on time.

Say delivering that product demands a skilled technician for a metal cutting machine, without which you could not operate the machine and deliver your product. It’s safe to say your skilled technician plays a pivotal role in delivering your value proposition.

But say there is also the Sales Engineer that is sitting down with the client to map out the specs for the custom tool. That person is going to need skills in communication, client relations, and a firm knowledge of the constraints of their cutting machine. She will also need to translate the client’s needs to the machine tech for making the part.

So, we’re identifying 2 pivotal positions that are essential to delivering the company’s value proposition:

Pivotal Positions

• Sales Engineer
• Machine Tech

If either of these positions went vacant, the company would not be able to deliver its value proposition.

Furthermore, each of those positions contain pivotal skills required for them to effectively execute their roles.

Pivotal Skills

• Sales Engineer: Communication, Client Relations, Basic knowledge of machine cutter
• Machine Tech: Advance knowledge of machine cutter

If either of the employees in these pivotal positions were deficient in the needed skills, there would be an erosion of the company’s value proposition. For example, if the engineer was deficient in her knowledge of the machine cutter, she might bring a design to the Machine Tech that is outside of the system capabilities to deliver, meaning a failure to deliver the solution on time.

We are also identifying some pivotal processes as well:

Pivotal Processes

• Working with the client to map their solution, and
• Communicating to the machine tech the solution they are building.

A breakdown in either of those processes could result in failure to deliver the company’s unique value proposition. If the process takes too long when mapping the solution, it may impact the timely delivery. If there is poor communication between machine tech and engineer, then the product may not be built to scale.

You’re probably noticing a common theme in our conversation. Our positions, skills, and processes are all tied back to our company value proposition. Whether our positions, skills, and processes are operating successfully or poorly ties to whether or not they are adding to or detracting from the company’s value proposition.

Using HCM to Improve Your Value Proposition

Going off our same manufacturing example, say you were happy with the way your team was delivering your value proposition. Everyone had the required skills, your positions were filled, and your processes were working smoothly. What might be some ways that you could increase your value proposition and further differentiate your company from your competitors?

Perhaps you think you’d be able to acquire more clients if you had a faster turnaround time to product delivery. If that’s the case, how might you make targeted investments in your people and your processes to shorten your delivery timeline?

Position Investment

Perhaps the Machine Tech is only able to work 6 hours per day. If you invested in another skilled machine tech and kept your cutting machine working twice as long, you may be able to reduce the amount of time it takes to deliver the client’s order.

Perhaps the Sales Engineer could build specs faster, but is slowed by the amount of clerical work that comes with the job. In this case, perhaps hiring an Assistant Engineer will relieve the Sales Engineer of the clerical burden and reduce the amount of time it takes to build the custom spec. The Assistant Engineer position might even turn into a feeder to the Sales Engineer position for purposes of succession planning, and reduce the company’s risk to turnover.

Skill Investment

Perhaps the Sales Engineer is building specs by hand, but a spec-design technology would allow her to build specs faster. The company could make the investment in both the design tool and the training for the Sales Engineer. If it does this, it might make competency in the spec-design tool a required skill for all Sales Engineers, and direct recruiters to seek this specific skill when recruiting future sales engineers.

Process Investment

Perhaps the process of solution mapping with the client often runs into roadblocks due to technical jargon that muddies communication. Improving this process may be accomplished by training Sales Engineers to avoid technical jargon, or building out a client tutorial that orients them to the common terms that will be used during the design process.

How does HCM Direct You Where to Invest?

Certainly, there are going to be many factors from financial to regulatory that will factor into the organization’s decision on how they will invest to make their delivery process faster. But, many of them will be specific to the capacity or volatility of the people in their workforce. Maybe the Sales Engineer is technology averse, and there’s a low chance she’ll adopt a new technological approach to design. Maybe the Sales Engineer doesn’t get along with your Machine Tech. Maybe there aren’t many skilled Machine Techs in your market, and bringing on business that hinged upon keeping your Machine Tech positions filled would be too much risk.

Regardless, the decision is going to draw heavily on your knowledge of your Human Capital—those collection of capacity, skills, competencies, and experiences of your workforce that translate business goals into business performance. Your ability to manage that human capital (grow it, acquire it, focus it, lead it, motivate it) will determine if you succeed or fail at delivering your value proposition to your clients. 

How Can You Use HCM to Create Greater Value for Your Clients?

I hope by now you’ve started to think of the pivotal roles, skills, and processes in your own organization, and where you can start to make targeted talent investments for improving business performance. When you can get laser focused on what skills and positions create value for your clients, you can make start applying principles of HCM to align your employees with your value proposition.

Here are a few questions to ponder:

1. What are the pivotal roles essential to the delivery of my value proposition?
2. What are the pivotal skills required for my pivotal roles to deliver my value proposition?
3. Do the employees in my pivotal roles have the pivotal skills?
4. If not, how can I develop the pivotal skills in my employees in pivotal roles, or acquire it elsewhere?

If you’re serious about the answers to these questions, we’d like to be a guide through the process.

Benetech is a boutique provider of Human Capital Management and Employee Benefits solutions for the mid-market employer. By delivering technology and advisement that reduces the impact of daily HR and Benefits tasks, we give clients the tools and an ongoing partnership to help them identify where focused talent investments can drive a sustainable competitive advantage.