What Is HCM (Human Capital Management) System And How It Affects Organizations 

Find out how human capital management (HCM) systems help HRs with their core tasks and in making strategic, data-driven decisions.

November 26, 2021 By Sara Ana Cemazar Share on Twitter! Share on Facebook! Share on LinkedIn!

hcm system

In the last 30 years, HRs across the world’s organizations transformed into equal business partners to leaders. Before that, they were mainly office clerks that handled employees’ paperwork and managed administrative tasks.

What made this change happen? Technology, obviously. Solutions such as Human Capital Management systems allowed HRs to automate many of the manual tasks they had to perform. By doing that, they were able to focus on working smarter, not harder.

Today, HCM systems are integral parts of HRs tech stacks. In this article, we will cover their main purposes, functionalities, and benefits.

One of the key aspects of a well-rounded HR tech portfolio is recognition and rewards. These are not a part of HCM systems, yet they are valuable for improving employee engagement, satisfaction, and more. Get our recognition and rewards solution buyer’s guide to help you choose your recognition software.

What Is a HCM system?

HCM system is an extensive suite of HR solutions that are designed to manage HR processes more easily and optimize employee experience.

hcm system

In comparison with HRIS (human resources information systems) and HRMS (human capital management system), it falls somewhere in between. It offers more functionalities than an HRIS system, but differs from an HRMS only in not encompassing payroll and time & labor features.

HCM is a core solution in HRs tech stacks. It automates core HR processes and centralizes all employee data. However, it is also used to get insights into vital HR metrics and make strategic data-driven decisions.

What Is The Purpose of The HCM System?

Here are the reasons why organizations invest in HCM systems.

Saving time

First and foremost, HCM systems are huge time savers. Since they feature core HR functions, they enable HRs to spend less time on manual work, like marking when employees are on a vacation or sick.

Consolidate employee databases

HCM systems are data-heavy – they dispose of enormous databases filled with different information on employees. Without HCM systems, there would be no way to access or use this valuable data.

Enable core HR functions

HCM systems enable hiring, compensation, regulatory compliance, adherence to company policies, employee development, and more. In other words, HCM systems provide software support for materializing all these processes.

hcm system

Strategic thinking

By having a HCM system, HRs minimize the administrative work they have to do. Moreover, by connecting data from different parts of the system, they are able to get unique insights and reports about their employees.

Therefore, HRs have more time to strategize their next steps and not think about doing the manual, administrative work.

HRIS vs. HRMS vs. HCM

All three of these systems abbreviations are sometimes used interchangeably, and they are very similar. However, they differ in scope of functionalities they cover.

Here are the main differences between the three systems according to HRMS solutions consultants.

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Essential HCM features

Human Capital Management Systems cover essential HR functions that are needed for companies to work smoothly. Here are the essential parts of every HCM system.

Core HR functionalities

Core HR functionalities include the very basics that even the smallest company cannot do without. This refers to updating the employee database – information like demographics, employment history and records, benefits, job role, and absence tracking. 

Self-service capabilities

HCM systems are not used by HRs only. Employees also sometimes use them to check their payroll, clock in and out, change their personal information, schedule and ask permission for vacation, and more. If an HCM system was to miss this functionality, employees would have to go straight to HRs for managing these details – which would, obviously, add to their workload.

hcm system

Compensation

Managing compensation and benefits is a crucial part of HRs job. Therefore, it’s not a coincidence that HCM systems usually cover this functionality.

However, compensation does not equal payroll. Payroll is usually included in the more encompassing HRMS system.

Talent acquisition

Staffing is one of main HRs tasks, and enterprise companies could have numerous open positions to fill at the time. Therefore, recruitment modules within HCM systems are very important to HRs.

With talent acquisition functionalities, HRs can build their talent pools, automate processes like sending rejection messages, screen candidates’ CVs, schedule interviews, and much more.

Onboarding

When a candidate becomes an employee, his information is transferred to the onboarding module of an HCM system. Onboarding features help employees connect to their managers, meet the company’s policies, and understand their future role better.

Moreover, onboarding frequently includes training, and sometimes features gamification elements that make it more fun for employees to participate in onboarding activities.

Performance

The biggest difference between HRIS and HCM systems is that the latter offers performance management. This module is very valuable to managers and employees themselves, since it offers a single space to track accomplishments, employee reviews, progress according to goals, etc.

Based on information from these, organizations can easily spot their top performers and also identify areas for improving employee performance overall.

Training

Training and development are so important to employees that 68% of them name them the most important company policies. When a training module is included in the HCM system, organizations can more easily track their employees’ training and development process.

Furthermore, this module allows organizations to customize their training and create libraries with useful materials such as videos, documents, courses, and so on.

Reporting and analytics

HRs need to report to their superiors on the most important aspects of their department’s tasks. This often includes retention, staffing, employee happiness, absence rate, overtime expenses, and more.

Not only do HCM systems allow HRs to report on these, but they also make it possible to get deeper insights like why employees are quitting or from which departments. This is crucial for planning or making strategic decisions.

How HCM Affects Organizations

So far, we have covered the main HCM functionalities, main reasons why organizations buy HCM, and how it differs from similar systems such as HRIS and HRMS.

Let’s now see what are the biggest benefits of HCM systems for organizations.

Reducing time to hire

Time to hire is yet another HR metric that is commonly found in HR reports. The lower it is, the better experience the candidate gets, and organizations’ needs are faster met.

HCM systems streamline the hiring process by automating important steps in the recruitment and hiring process, therefore allowing HRs to reach the best candidates in a shorter amount of time.

hcm system

Improving employee retention

Since employee retention is so costly, it’s often one of top priorities in an organization.

Longer employee tenure is achieved by keeping employees happy with workplace culture, compensation and benefits, recognition of employees’ work, and more.

With an HCM system’s performance management module, HRs and managers can get insights into their top performers and recognize them accordingly. Moreover, the HCM system offers an onboarding module. When onboarding is done right (and technology plays a crucial part in this, especially when employees work remote), it can improve retention by 82%.

Optimizing engagement and productivity

Getting insights from performance management and training modules can help HRs spot areas for improving employees’ productivity and engagement. However, employees from one department benefit from increased productivity when an HCM system is implemented: you’ve guessed it, it’s HR!

Can you imagine how much time would HRs spend on tedious administrative tasks if there weren’t HCM systems?

Making strategic decisions

HCM systems store valuable data that can be used for in-depth analysis that improves HRs’ decision-making. By making data-driven technology, HRs can more easily determine which actions need to be taken, why, and when.

Streamlining HR processes

Streamlined HR processes reduce costs of human capital, meaning that organizations don’t need to hire as many people to manage the basic HR processes.

Higher HR ROI

By introducing and using an HCM system, organizations are able to get better returns on HR investments. The longer the organization uses the same HCM, the higher the ROI.

Employee Experience Cloud: A Perfect Addition to Your Company’s HCM

HCM systems are integral parts of HR tech stacks. However, HCM systems are not enough to meet the demands of today’s employees, who are asking for better experience working for their employers.

SemosCloud’s employee experience cloud offers modules for:

  • Recognizing employees’ work
  • Offering continuous feedback
  • Optimizing employees’ wellness
  • Streamlining internal communications
  • Conducting employee surveys
  • Personalized employee journeys.

Get in touch with our team to see how your organizations’ HCM system can integrate with our experience cloud and help you improve retention, engagement, and satisfaction in your company.