Human capital management (HCM) is a broad set of practices and applications for recruiting, managing, and developing a company’s human capital—aka their workforce. As the name implies, HCM software considers people as valuable capital—a strategic asset worthy of investment—rather than merely the cost of doing business. Today, this human resources (HR) software is significantly different than in the past, as it now leverages advanced technologies that offer greater insight and efficiency than ever before. 

The benefits of human capital management 

In the digital age, the importance of talent management and strong HCM strategies can’t be overestimated. Building a future-ready workforce requires more than just attracting and onboarding the right candidates in an efficient way—though that’s also crucial. To combat a shortage of skilled workers in a fiercely competitive landscape, a holistic approach is needed. Best-in-class HCM software can help you create compelling compensation and benefits packages, up- and re-skill your existing workforce, create an internal talent pool, develop a new generation of leaders, and provide engaging employee experiences that keep everyone invested.

Here are some of the many other benefits of HCM software: 

  1. Boost productivity 
    Human capital management software can simplify and automate many HR workflows and processes to help everyone work more efficiently.
  2. Support data-driven decisions
    Systems that centralize employee data, automate insights, and offer advanced planning and predictive analytics features can help you make faster, evidence-based HR decisions. 
  3.  Motivate and engage employees
    By providing a personalized employee experience and next-gen tools, such as virtual employee assistants, you can keep employees motivated and engaged, which lowers absenteeism and attrition. 
  4. Boost HR compliance with global and local regulations
    HR policies and regulations are always changing. HCM software can help you keep up and comply with regulations, such as the Fair Labor Standards Act (FLSA), Equal Employment Opportunity Commission (EEOC), and the Family Medical Leave Act (FMLA).

A short history of HCM: how the role of HR has evolved

The term “human capital” was coined in the early ’60s to reflect valuable employee skills that could be cultivated to drive business growth. Regulations around fairer employment practices were introduced for the first time, and there was a growing recognition of psychological motivators in the workplace.  

HR professionals looking at HCM software

Fast-forward to the introduction of the Internet and the growing sophistication of HCM software. Increasingly, companies began to rely on HCM solutions to help them manage employee data, streamline recruiting, ensure fair compensation practices, and more. 

Today, the demands placed on HR are greater than ever, with a workforce that looks much different than in the past. The workforce is far more diverse and spans multiple generations, from Generation Z and Millennials to Baby Boomers. There’s also a fast-growing segment of gig workers—and employees can be based anywhere on the planet. Employee expectations have also changed, with employee experience now an essential factor in employee recruitment and retention. HR has had to adapt and digitally transform to better meet their people’s needs. 

Advanced technologies are now essential to help HR manage this complexity. These technologies are revolutionizing the nature of work, the way people work together, and the way companies are managed. Artificial intelligence (AI) can now automate routine tasks and offer far greater insight than was available in the past. Virtual reality can be used for rich, immersive training experiences. Blockchain can quickly verify data accuracy and ensure security and compliance. And of course, mobile and cloud capabilities open up new collaboration possibilities and freedom for an untethered workforce. Together, these technologies are shaping new possibilities and helping spark innovation. 

HR best practices 

Leverage the power of the cloud, AI, social, mobile, and other technologies to put these best HCM practices into place.

Features and functions of human capital management software 

Best-in-class HR software integrates processes and competencies throughout the employee lifecycle. At SAP, we organize these into four pillars of HCM: employee experience management, core human resources functions including payroll, talent management, and analytics-driven workforce planning.

Performance management software

Employee experience management

Employee experience management seeks to understand why employees feel the way they do about their experiences at work, starting as a candidate to the day they leave and everything in between.  

Voice of the employee (VoE) technologies and tools to gather this information include 360 feedback assessments, surveys, behavioral and sentiment analysis, and more. Using these insights, organizations can personalize each employee’s experiences across their lifecycle, boosting engagement and productivity.  

Core HR and payroll

Capabilities for core HCM support all the administrative functions needed to manage the day-to-day—from employee data, payroll, and benefits to essential services.  

Integrated cloud-based HCM systems with a mobile-first approach streamline these processes. They support self-service, real-time access to a single source of HR data, compliance with data privacy mandates, and more. 

Woman using HR software

Talent management

Processes for managing talent span recruiting and onboarding, compensation and performance management, learning and development, and succession planning—in short, everything needed to hire and retire the skilled employees that are so critical to business success.

Integrated and automated tools make it faster to source and hire global talent through internal and external job postings, two-way communication via mobile devices and chatbots, a streamlined contract process, and candidate tracking and pre-onboarding.  

Features that support employee goal setting and tracking as well as ongoing coaching and feedback can help you better evaluate, promote, and compensate top-performing employees.  

People analytics and workforce planning

Features in this area support data-driven decisions across all HR processes. They provide metrics and KPIs, reporting, predictive workforce modeling, AI-powered analytics, and more to support strategic and operational planning as well as budgeting and performance management.

HR analytics software

HR software glossary

The human resources software category has become increasingly complex in recent years. There are many different HR terms out there—and here are a few of our key terms and definitions. 

Human capital management (HCM) is a broad set of practices and applications for recruiting, managing, and developing a company’s human capital—aka their workforce. Human capital management is often used as the umbrella term to describe the entire HR software category.

Human experience management (HXM) is SAP’s vision for the future of human capital management (HCM). It builds on the best of SAP’s HCM solutions and puts greater emphasis on employee experiences and engagement.

A human resource information system (HRIS) is software that helps companies manage and automate their core HR processes—such as recruiting, applicant tracking, time and attendance, benefits administration, and payroll. The software also includes an employee database (the “information” part of HRIS) to organize and manage employee data, from names and addresses to social security numbers and work permits. Some HRIS software also offers employee self-service tools, embedded localization, and regulatory compliance, reporting, and more.

A human resource management system (HRMS) is a type of software that includes all the features offered in a HRIS system plus additional talent management capabilities. These capabilities vary from HRMS to HRMS but often include performance management, learning and development, succession planning, people analytics, workforce planning, and employee experience management. 

Human resource information system (HRIS) and human resource management system (HRMS) are sometimes used interchangeably—and sometimes, definitions vary for each. However, at SAP we see a clear distinction. An HRIS system includes an employee database and functionality for core HR processes. An HRMS system is broader. It includes an HRIS plus additional talent management capabilities, such as employee learning, development, performance management, and analytics.

An applicant tracking system (ATS) is a type of software used by recruiters and employers to track candidates throughout the hiring process. ATS software can post and manage job ads on multiple sites, collect the job applications coming in, sort and rank candidates, automate responses, send out interview reminders, and more.

Talent acquisition is the ongoing process of acquiring the right employees to meet business goals. It includes all the processes employers use for finding, recruiting, tracking, assessing, and interviewing job candidates—as well as onboarding new hires.

Talent management follows talent acquisition. Talent management is the ongoing process of developing and retaining employees. It includes training, performance assessments and management, leadership development, succession planning, and more.

What to look for in HCM software 

Here are some of the features and capabilities that are important in HCM systems and tools today:

  • Mobile workforce management and self-services along with cloud HR processes to make software nimble, user-friendly, and accessible from anywhere, and from any device.
  • Scalable and future-ready with modular cloud deployment options for easy access to technology innovations.
  • Integration with ERP, CRM, and other business processes as well as operational data.
  • AI-driven tools that can make intelligent recommendations, from automatically surfacing personalized training options to connecting each employee with the right wellness resources based on their needs.
  • Learning and development capabilities for sharpening employee skills, completing training certifications, and developing leadership. Look for integrated collaborative social tools, third-party content, virtual reality environments, and automated recommendations to elevate the learner experience.
  • Global HCM, including support for different currencies and compliance with regulations at a global, federal, and local level.
  • The ability to collect and analyze employee feedback, sentiment, and behavioral data—and then use it to provide personalized employee experiences.
  • Embedded intelligent technologies like machine learning and chatbots to provide guidance and automate repetitive, time-consuming tasks.
  • Cobots and employee chatbots that help teams find information and manage requests using voice commands—for a more compelling, productive employee experience.
  • Collaborative and responsive processes combined with automation and AI technology to boost organizational agility.
  • Goal tracking, monitoring, and measurements that can be aligned with strategic organizational goals.

What to look for in an HCM company

When comparing HCM software vendors, here are some questions to ask:  

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