What is the Difference between Human Capital Management and Human Resource Management? Detailed Comparison

human capital management vs human resources management

New trends in business are being introduced every day. But with the shift in ideas, new terminologies are introduced. The human resource was previously known as human personnel, and it appears like another shift is going to take place. 

Human resources have driven human capital management. Want to know the difference between human capital vs human resources? Don’t worry! We are here to help you out. In this article, we will tell you the difference between human capital vs human resources. So, let’s get on with it.

Human Resource Management and Human Capital Management: A Detailed Overview

Even though the phrases are used interchangeably, the concepts are different from the perspective of historical evolution. 

Simply put, human resources solve the HR requirements of small or mid-sized organizations, and human capital emphasizes the larger umbrella of function throughout the lifecycle of the employee. 

What is Human Resource Management?

Human resource management (HRM) system comprises the elements known in human resource information systems emphasizing on the core payroll, which is often known as Human Resource Information Systems. Added technology systems used for managing HR functions are a part of this umbrella, such as employee self-service, administration, and management reporting.

difference between human resource and human capital

The best way to understand HR is to understand resources. These are asset pools, and you can draw from them until the asset pool runs out. The human resource represents a pool of available human knowledge, skills, and expertise that organizations can tap on when required. In simple words, human potential can improve productivity, efficiency, and profitability. 

Human Resource Management (HRM) is a strategic and comprehensive approach to managing an organization’s most valuable assets: its employees. It involves a wide range of functions, including recruitment, selection, training, development, performance management, compensation, and employee relations. The goal of HRM is to optimize the productivity and satisfaction of the workforce, aligning their individual goals with the overall objectives of the organization. By fostering a positive work environment and ensuring that the right people are in the right roles, HRM contributes significantly to the effectiveness and efficiency of an organization, driving its success in a competitive market.

What is Human Capital Management?

Human capital management is an all-inclusive term used to describe the functions that are a part of the human capital strategic management in a company from applicant and talent tracking to analytics. Performance management, budgeting, and onboarding are also a part of Human Capital Management

It is crucial for an organization to use human capital management if it wants to make the most of the human capital to realize its overall objectives and goals. Selecting a vendor supporting HCM strategy, technically, as well as philosophically is the key to the success of the organization. Integrated HCM offers all-encompassing tools over a one-function human resource management solution. 

Human Capital Management (HCM) is a comprehensive set of practices and strategies designed to optimize the value and performance of an organization’s workforce. Unlike traditional Human Resource Management (HRM), which focuses on administrative tasks, HCM emphasizes the strategic utilization of employees to achieve organizational goals. This includes talent acquisition, workforce planning, employee development, performance management, and succession planning. HCM leverages technology and data analytics to enhance decision-making processes and to provide insights into workforce trends and needs. By viewing employees as key assets whose value can be measured and enhanced, HCM aims to foster a more engaged, skilled, and productive workforce, ultimately driving the organization’s long-term success and competitive advantage.

Human Capital vs Human Resources

Human Capital and Human Resources are interconnected yet distinct concepts within organizational management. Human Resources (HR) primarily focuses on the administrative functions related to managing employees, such as recruitment, compliance, payroll, and benefits administration. It is concerned with ensuring that the organization’s policies and practices are effectively implemented and that the workforce is managed efficiently. On the other hand, Human Capital (HC) emphasizes the strategic value of employees, viewing them as vital assets whose skills, knowledge, and abilities can be developed to drive organizational success. HC management involves investing in employee development, optimizing talent utilization, and leveraging data analytics to align workforce capabilities with the organization’s long-term objectives. While HR ensures the smooth functioning of employee-related processes, HC aims to enhance the overall value and productivity of the workforce, thus contributing to the sustainable growth and competitive advantage of the organization.

For some, it is just a name change, but there are real differences in how they work. 

A school of thought supports the idea that change recognizes that identifying workers as resources signifies that they are a finite energy or work source that can easily be exploited. So, it is used and then passed over to get newer resources. 

But using this term doesn’t mean that is how the workers are viewed. Yet, for many, the relation is enough to take them as human resources. 

While human capital means something quite different. Resources might be limited but not capital, at least not necessarily. Capital means wealth, and it causes the business to acknowledge the value of the workforce. 

Moreover, capital can generate more capital. So, taking the employees as human capital instead of human resource shows an ongoing relationship with the assets that are committed to driving prosperity and growth for the company.

Surely, this is not what everyone believes. Many take capital to be a derogatory term and imply that workers are still resource but expandable ones. So, it can be spent to generate more wealth for the company. This is just like using your money to make more money. 

Human resource is used as something limited, but human capital signifies a progressing relationship of value. These terms are much more than simple labels. 

Role of Human Management in a Company

Human resource management deals with the payroll and things related to employment laws. The role of HRM in an organization includes staffing and job analysis, appraisal and measurement of the performance of the workforce, and proper use of the workforce. 

Role of Human Capital Management in a Company

When it comes to the outcomes, human resources are observable and not tangible. So, the practices of human capital require methodologies, tools, openness, and business acumen to help others reflect the work on themselves. Similarly, the role of human capital management is to develop employee knowledge and capability. It includes recruiting the right talents, giving orientation to the newly hired employees, training the employees to keep them updated, making them feel comfortable, making them feel self-sufficient, getting them ready for adverse conditions, and retaining the employees.

human resource vs human capital

So, it can be said that human capital management ensures the overall success of an organization by working on the business employees and resources, while human resource management aids a business regarding employment regulations, such as arranging the benefits of employees. It can also develop the skills and knowledge of the employees. 

How to Choose the Right HR Solution for Your Organization

Selecting the right HR solution, no matter if it is Human Resource Management or Human Capital Management, you need to examine the existing needs and challenges. It can be overwhelming for some. However, by following the steps given below, you can simplify the process of evaluation. 

  • Learn About the Problems: Common problems with an old HR system include high cost of ownership, complex workforce, non-compliance, and inefficient processes. 
  • Explore Solutions: You will come across several solutions with similar features but the ones that stand out from the rest usually offer actionable data, scalable technology, and customized employee experience. 
  • Create Requirements: Every business has its own needs. However, a majority of them look for systems, which help in increasing profitability, draw in and retain the best talent, support strategic growth, and prevent compliance and security issues. 
  • Validate the Selection: Measure the capability of each provider against the requirements of HCM, and gather details from the prime stakeholders to ascertain a smoother process of transition. 

Bottom Line: Human Capital vs Human Resources

Human capital and human resource concepts are quite similar to each other. Both refer to the potential or current human skills, talent, and capabilities that are crucial for the success of an organization. 

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