Human capital management and human resource management systems are different concepts that are often used interchangeably, but they have different meanings and implications for businesses.
Human capital management refers to the skills, knowledge, and experience that employees possess, while human resources management refer to the department within an organization that's often responsible for managing employees and directing the administrative functions of a company or organization.
What Is Human Capital vs Human Resources?
Understanding Human Resource Management
Human resource management1 (HRM) focuses on managing employees within an organization. It involves2 planning, coordinating and directing administrative functions like talent acquisition, training and development opportunities and management.
They also oversee employee relations, performance management, deal with competitive compensation plans and benefits, develop and implement training programs and provide employees with a career development path within organizations.
Human resource management professionals may assist in developing job descriptions and identifying potential recruitment channels.
Human resource management professionals2 "identify ways to maximize the value of the organization's employees and ensure that they are used efficiently."
Understanding Human Capital Management
Human capital management (HCM) involves leveraging3 and hiring qualified employees to manage workplaces effectively.
According to an article3 by Encyclopedia Britannica, "the management of human capital is diffused throughout an organization. All management decisions and actions that affect the nature of the relationship between the organization and its employees are seen as important."
HCM often emphasizes employee development, recognizing that continuous learning may contribute to career advancement, continuous improvement and organizational growth.
HCM may include:
- Recruiting employees
- Onboarding new hires
- Fostering employee engagement
- Managing payroll
- Overseeing benefits and retirement
- Conducting training programs
- Ensuring reporting and compliance
Key Differences Between Human Capital Management and Human Resources Management
While these two concepts are closely similar, they differ in their approach, focus and scope of how they operate. Human capital management takes a broader, more holistic approach to strategic workforce planning and employee development opportunities, while human resource management focuses on the operational aspects of managing employees.
| Aspect | Human Resource Management | Human Capital Management |
|---|---|---|
| Focus | Administrative, operational | Strategic |
| Key Functions | Recruitment, compensation, benefits, training, performance management | Human resources tasks plus talent management, workforce planning and leadership development |
| Approach | Transactional, operational | Strategic, developmental |
| Goal | Efficient workforce management | Maximize employee value to drive organizational success |
| Employee POV | Employees are resources to manage | Employees are an asset to develop and invest in |
The Role of Human Capital Management in Organizational Success
Human capital management may play an important role in driving business growth and organizational success. Noted in one study, any experience⁴ that an employee brings with them to a new role, such as their skill set, knowledge and overall work and life experience, may impact their productivity and the organization's outcome. A study4 by McKinsey highlights the importance of career mobility, stating, "Role moves help individuals continuously upgrade their skills, raise their income, and build track records that translate into value ... However, individuals can't make bold moves that represent a real leap unless an employer sees their potential and takes a chance on hiring them."
Investing in human capital4 through training and development improves productivity and profitability. This may ensure the organization is a place that fosters innovation, creativity and competitiveness for employees who are seen as valuable assets and are worth investing in today's competitive business environment and maximizing economic value.
Britannica1 points out that investing in human capital management is seen as having an impact on both national and global economies, and more specifically, how investing in people is key to a company’s business success. It also mentions that organizations may need to develop new strategies to make the most of human capital, like setting up learning systems that could help it grow over time.
It goes on to suggest1 that companies should keep investing in training and skill-building to help develop a sense of mutual commitment between employees and the organization’s goals.
The Importance of Strategic and Role Alignment in Human Capital
According to the U.S. Office of Personnel Management5, strategic alignment is known as "a system that ensures human capital programs are aligned with agency mission, goals, and objectives through analysis, planning, investment and measurement." This may involve:
- Mission-focused operations
- Clear opportunities for best practices
- Informed and engaged stakeholders
- Focused measures and evaluation
Role alignment may help to bridge the gap between human capital and human resources to match an employees' skills and expertise with the role that best utilizes their strengths and may foster a positive company culture.
For example, in a "Human Capital Plan"6 from the U.S. Equal Employment Opportunity Commission, there is a goal to support its mission in a "safe and effective and efficient way" by evaluating existing human capital management processes and programs to ensure they support desired outcomes and are compliant with labor laws and to build a strong organizational culture. This also includes adding in "maximum flexibility and utilization of workforce activities" like telework, health and wellness to support employees' well-being.
Leveraging Technology for Effective Human Capital Management
Human capital management technology7 may be a way to help organizations to streamline human capital management strategies and resources processes, improve employee engagement, and enhance talent management.
Human resources is key to an organization’s success because it makes sure the right people are hired and supported to do their best work. Human resources handle everything from recruitment to training, making sure the team has the skills needed to succeed. Human resources is also tasked to help encourage a positive work culture where employees feel motivated and connected to the company and its goals.
On top of that, human resources works with employees to ensure they are aligned with the organization’s objectives, which may boost overall performance. Human resources take care of things like performance reviews, employee engagement, and retention of engaged employees, all of which may help keep teams motivated. Plus, human resources makes sure the company is following labor laws and helps manage any employee concerns.
Human capital management systems (HCMS)8 may help organizations to provide a range of tools and features to support HCM, like applicant tracking, human resource information systems, learning management systems, employee performance and management systems, or time and attendance tracking systems.
Employee self-service portals like Workday® may empower employees and reduce administrative load for human resources professionals and employees.
If you're interested in learning more, explore our blog on What Is Human Resources to get an in-depth look at if human resources could align with your personal interests and goals.
Workday® is a registered trademark of Workday, Inc. 6110 Stoneridge Mall Road Pleasanton, CALIFORNIA UNITED STATES 94588
1 Britannica, Human Resources Management, at https://www.britannica.com/topic/human-resources-management (visited Feb. 24, 2025).
2 Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, Human Resources Managers, at https://www.bls.gov/ooh/management/human-resources-managers.htm#tab-2 (visited Feb. 24, 2025).
3 Britannica, Human Capital, at https://www.britannica.com/money/human-capital (visited Feb. 24, 2025).
4 McKinsey & Company, Human Capital at Work: The Value of Experience, at https://www.mckinsey.com/capabilities/people-and-organizational-performance/our-insights/human-capital-at-work-the-value-of-experience#/ (visited Feb. 24, 2025).
5 U.S. Office of Personnel Management, Human Capital Framework: Strategic Planning and Alignment, at https://www.opm.gov/policy-data-oversight/human-capital-framework/strategic-planning-alignment/ (visited Feb. 24, 2025).
6 U.S. Equal Employment Opportunity Commission, Human Capital Plan, at https://www.eeoc.gov/human-capital-plan (visited Feb. 24, 2025).
7 National Center for Biotechnology Information, Human Capital and Its Impact on Organizational Performance, at https://pmc.ncbi.nlm.nih.gov/articles/PMC9990565/ (visited Feb. 24, 2025).
8 U.S. Office of Personnel Management, Human Capital Management, at https://www.opm.gov/policy-data-oversight/human-capital-management (visited Feb. 24, 2025).
