Human capital is arguably the most important resource any organization can cultivate. Defined by McKinsey & Company as the “collective knowledge, attributes, skills, experience, and health of the workforce,” this represents the unique and undeniably powerful qualities that professionals bring to the workforce.
Properly leveraged, these qualities can drive exciting outcomes, consisting of unmatched productivity, cutting-edge innovations, ethical business practices, and so much more. However, it takes a nuanced strategy to leverage this talent. Without the right practices and policies in place, otherwise promising teams or professionals may struggle to reach their full potential.
Therein lies the value of strategic human capital management (SHCM). Linking human resources with business practices, this practice promises to make the most of human talent so that employees (and the teams they form) can make a genuine difference.
This concept is often confused with human capital management, although both are essential. To that end, we will answer the important question, “What is human capital management?” and “What are the benefits of human capital management?” Keep reading to discover how these concepts play into strategic human capital management.
What Is Human Capital Management?
Human capital can be difficult to define and quantify as it involves intangible qualities held by human employees and the teams or departments they work together to form. Although intangible, these skills, knowledge, and efforts have clear economic value.
When channeled properly, human capital can drive impressive business outcomes and even cutting-edge innovations. The practices relied on to acquire and leverage this talent coalesce to form an increasingly prominent concept known as human capital management (HCM).
Centered on recruitment, hiring, training, and retention, human capital management encourages businesses to invest in and nurture the human employees that work so hard to help these organizations thrive. These practices are closely aligned with human resource management (HRM), but with more of a holistic approach for HCM, as opposed to the often administrative nature of HRM.
HCM, with its broad scope encompassing the entire employee lifecycle, emphasizes performance management. It also prioritizes employee engagement, recognizing that human capital becomes more valuable when employees feel respected and inspired.
The Role of HCM in Organizations
HCM plays a vital role in determining how many organizations are structured and run. Specifically, HCM plays into these processes:
- Recruitment and Hiring. A strong pipeline of professional candidates is a must. Ideally, new hires will possess not only the right skills, but also the right mindset. That mindset consists of values that align with the organization in question. Through strategic workforce planning, HCM reveals where talent gaps exist and how these can be addressed. This means accurately describing available positions and using the right platforms and networks to reach potential candidates.
- Training and Development. Once hired, employees require ongoing training to ensure that their skills remain relevant, and to develop new skills that help them advance in their careers. Carefully curated training programs can help, along with mentorship opportunities. In general, HCM strives for a culture of continuous learning.
- Performance Management. Employers must navigate a fine line to keep employees feeling engaged, inspired, and respected. This means providing enough guidance and setting clear expectations while also granting employees some say over their professional trajectory and day-to-day work. This is where performance management comes into play, with HCM offering guidance as employees set objectives and as managers follow through with evaluations.
- Succession Planning. Although HCM strives for strong employee retention, some employees will inevitably leave due to retirement or in pursuit of other job opportunities. When this occurs, strong succession planning can promote a smooth transition. This is also achieved through the aforementioned HCM-guided recruitment and hiring processes.
Exploring Strategic Human Capital Management (SHCM)
Strategic human capital management draws on the power of general HCM practices, but with a greater focus on leveraging human capital to make progress toward ambitious organizational objectives.
The addition of the term ‘strategic’ is key. This reveals the importance of aligning HCM with business policies and long-term goals, especially as they relate to finance, product management, and even marketing.
Key Components of SHCM
SHCM is, by nature, diverse, as each organization will possess distinct objectives and unique practices for making progress toward these goals. Generally, most SHCM initiatives will encompass these key components:
- Aligning HCM with Business Strategy. Alignment begins with developing an in-depth understanding of broad business objectives. From there, leaders can evaluate typical HCM solutions as they relate to overarching objectives, pinpointing gaps as they occur and planning strategic initiatives to bring these areas into greater alignment.
- Talent Management. Centered around innate abilities and qualities, talent management strives to recognize where specific team members shine and nurture these abilities in the pursuit of broader goals. SHCM guides talent management through strategic talent acquisition and with training and advancement opportunities closely aligned to employees’ innate skills.
- Creating a Positive Organizational Culture. A positive culture can promote many of the qualities advocated for by SHCM. This includes employee engagement, empowerment, and autonomy, not to mention a spirit of continuous improvement. SHCM improves organizational culture by investing in employees through training and development, as well as by promoting strong work-life balance.
Differentiating SHCM From Traditional HCM
A number of commonalities link HCM and SHCM, but there are a few key differences that must be considered when implementing SHCM solutions. With these differences in mind, traditional HCM can be elevated to produce impressive outcomes, both among individual employees and at the organizational level. Distinctions worth acknowledging include:
- Strategic Focus. It is impossible to understate the importance of the term ‘strategic’ when describing SHCM, specifically how it differs from HCM. With SHCM, every practice or policy is developed with the goal of aligning day-to-day initiatives with key organizational missions, visions, and objectives.
- Scope and Integration. SHCM tends to maintain a broader scope than HCM, incorporating many cross-department initiatives in hopes of delivering greater organizational alignment. Meanwhile, HCM is often more soloed in nature, as managers may focus on what can immediately be improved within specific teams.
- Use of Data and Analytics. While data-driven approaches exist within HCM initiatives, SHCM places a greater emphasis on data analytics as an opportunity for revealing how investments in human capital can enhance business outcomes. With HCM, data analytics may place a greater focus on immediate compliance concerns.
- Cultural and Organizational Impact. Traditional HCM has a significant role to play in abiding by legal obligations. SHCM takes this to a new level to promote an overarching business and work environment that supports strategic objectives and sustainable growth.
Effective SHCM Strategies
To leverage human capital in the pursuit of strategic objectives, SHCM must address all aspects of the employee lifecycle. Below, you can review a thorough overview of SHCM strategies in the context of the previously mentioned priorities: recruitment, training, performance management, and succession planning.
Recruitment and Retention Strategies
Under an SHCM mindset, recruitment represents an exciting opportunity. This is the chance to attract skilled professionals passionate about their work, as well as those who hold strong values closely aligned with the organization in question. Strategies worth implementing include:
- Employee referrals. Employees often possess vast professional networks featuring similarly passionate and talented individuals. These networks can be leveraged to reveal potential hires who, like the employees who refer them, share key organizational values and are passionate about doing their part to help achieve strategic objectives.
- Professional development. SHCM recognizes the importance of retention as it can be difficult to ensure employee alignment if turnover rates are too high. Professional development reveals that organizations are invested in their current employees. This may promote greater satisfaction, and ultimately, better retention of the most skilled professionals.
Training and Development Initiatives
Once employees are on board, they should feel valued and supported. They should also believe that their employers believe in them enough to help them grow through targeted training and development initiatives. Examples include:
- Tuition assistance. Many employers help cover the cost of graduate-level education or other college-based training opportunities. The goal is to develop new skills that allow employees to promote progress toward organizational objectives.
- Mentorship programs. Mentors help new hires feel connected and can also foster greater alignment with organizational values and culture. Meanwhile, mentors get a great sense of satisfaction from helping new employees grow and thrive.
- Online learning platforms. Employees should enjoy easy access to a variety of learning solutions. Organizations that develop curated learning platforms can encourage employees to develop the specific competencies that promote long-term business objectives.
Performance Management Systems
Performance management promotes open and honest communication between managers and employees, with the goal of aligning individual goals with organizational objectives. This forms a cycle that includes the four crucial stages of planning, monitoring, reviewing, and rating (or rewarding).
With SHCM, one of the key priorities of any performance management solution is to help employees take ownership of their individual goals as they relate to business strategies. These systems may also integrate competency models to encourage employees to develop the right skills and help achieve the right objectives.
Succession Planning
Strong retention may be an important goal, but succession planning remains a critical component of SHCM. After all, retirement is a core component of the employee lifecycle. As indicated earlier, integration with recruitment is crucial so that organizations can avoid harmful labor shortages and limit the burden on other employees when key positions remain open. Generally, an SHCM-oriented approach aims to minimize disruption.
Benefits of Strategic Human Capital Management
Done right, SHCM can deliver numerous benefits, ranging from greater productivity to exciting innovations and intrinsic rewards such as employee satisfaction. The core benefits of strategic human capital management strategies are explained in detail below:
Improved Organizational Performance
By driving enhanced innovation and productivity, SHCM can spark impressive improvements in organizational performance. This begins at a granular level when individual employees reach their full potential, entire organizations reap the rewards. Beyond this, however, SHCM brings these individual improvements into alignment so that teams can work together to make progress toward common goals.
Enhanced Employee Engagement and Satisfaction
Engaged employees are productive employees, and SHCM promises dramatic improvement in long-term engagement and satisfaction. This is achieved, in part, by giving employees a sense of purpose and the chance to contribute to meaningful initiatives in the pursuit of a shared, highly compelling mission. SHCM also advocates for greater employee empowerment and autonomy, so professionals feel intrinsically driven.
Better Talent Acquisition and Retention
SHCM promotes powerful talent acquisition by developing strong pipelines so that meaningful relationships are continually developed with the best job candidates. Meanwhile, effective employer branding helps these organizations draw in exceptional talent.
Once the best and brightest professionals are on board, SHCM can encourage them to stick around by offering compelling opportunities for professional development and advancement. A positive work culture also influences retention rates, but SHCM gives leaders the tools to build a strong culture that feels true to core business objectives.
Increased Innovation and Adaptability
SHCM promotes an innovative mindset throughout every stage of the employee lifecycle. This begins with talent acquisition, with SHCM-driven hiring processes ensuring that top candidates possess not just the necessary experience or academic credentials, but also a spirit of innovation and the passion needed to bring cutting-edge ideas to life.
Meanwhile, by encouraging the purposeful development of a supportive culture in which all employees feel valued and trusted, SHCM encourages professionals to share ideas and pursue ambitious initiatives. Adaptability should also be a priority in today’s quickly evolving market. With SHCM, rapid adaptations are not only possible, but actively pursued through change management.
Sustainable Competitive Advantage
Through data-driven forecasting initiatives, SHCM determines where key risks and opportunities are likely to emerge in the future. This, alongside a spirit of innovation, grants SHCM-oriented organizations a strong competitive advantage. A growing body of research suggests that when employers emphasize SHCM strategies, profitability can see impressive increases while also delivering greater resilience during crises.
Pursuing a Management Master’s Program with Focus on SHCM
Are you intrigued by the aforementioned strategic human capital management benefits? Perhaps you are interested in building SHCM into your own career path. Look to UTC’s Master of Science in Management (MSM) for a deeper dive into SHCM as it relates to powerful business opportunities.Our MSM curriculum includes several courses that incorporate concepts relevant to SHCM, not to mention an entire class dedicated to SHCM. Reach out today to learn more about this program or feel free to apply today.
