From HRM to HCM: what is the difference?

Citation

Mayo, A. (2009), "From HRM to HCM: what is the difference?", Strategic HR Review, Vol. 8 No. 6. https://doi.org/10.1108/shr.2009.37208fab.005

From HRM to HCM: what is the difference?

Article Type: Q&A From: Strategic HR Review, Volume 8, Issue 6

Leading industry experts answer your strategic HR queries

Andrew Mayo President of the HR Society.

I often ask this question of my students, and I receive a wide variety of responses. Indeed, I don’t think there is a widely accepted and definitive answer. But many of the responses will be loosely around “treating people as assets,” or “to do with measurement,” and they are on the right lines.

Very few “people departments” have renamed themselves “human capital departments,” except for the HR practices of major consultancies. It does sound even more inhuman than the imported HRM we have become so used to. For me, HCM is not a replacement anyway. People are resources and represent significant costs, and they have to be managed and administered. HRM is the platform of policies, processes and procedures that enable that to happen. The effectiveness of all these activities, and their efficiency of delivery, need measuring – with standards and targets and regular reporting. But it is a measurement framework that should be separated from HC measures – and too often, “HR metrics” is a basket in which they are all mixed up.

Understanding value creation

All organizations – public, private, and charity – exist to provide and create value for their stakeholders. One often thinks that some are focused on creating value (or benefits) for themselves, but that is not their avowed purpose in life. The drivers of value are the assets they have, and although not technically correct in accounting terms, these are sometimes referred to as different types of capital. Assets can be tangible or intangible; they have quite different characteristics, one of which is that the latter have no standardized system of being measured. “Human capital” is one of these intangible assets. However, this does not simply translate across to “people.” Not all people are assets – indeed you may know some who are “liabilities” – that is, they subtract net value rather than add it. But undoubtedly, some of our people are the most important assets we have.

Human capital management then is about how we look at people as value-creating assets. For me, it is very close to talent management. Many organizations have a very restricted and exclusive view of talent, confining it to “high potentials” – which are typically 1 per cent or so of an organization’s people. I would define talent as “those people directly in the line of value creation to one or more stakeholders, and who possess a high level of the relevant knowledge or skills needed.” This will include some quite humble people on the front line of the organization, and is a radically different way of looking at people compared to the systematized and hierarchical approaches of HRM.

Nurturing value generators

The first discipline of HCM is identifying who these assets are. They may be defined by role, or as exceptional individuals. The starting point in the process is the value chain of the organization – not an HR-driven competency framework or grade orientated development center. What are the knowledge, skills and experiences that we know are value-building in our organization? And what scale will we use to distinguish the level that people have? How many do we need to meet our business strategies? Our next task is to engage them and retain them. Do our HRM systems allow enough flexibility to meet the financial and non-financial aspirations of our essential assets? We also want to grow their potential – some will just be great performers, but others will be able to take higher responsibility in the future. Finally, we need a culture that recognizes talent and the fact that it may be treated differently. Some public sector organizations find this very hard to accept – at the other extreme some banks let talent polarization get totally out of hand. But we must have systems and attitudes that nurture talent and encourage the generation of all the value they are capable of producing.

Effective management demands measures to guide it; inevitably HCM will be incomplete without a measurement framework. There will be some factual measures that we want – numbers in each asset category, turnover, vacancies and so on. But we know that performance is the product of the quality (or value) of the people we have and their engagement. We do have a great gap in HCM, namely a systematic way of understanding the value of people. It is not to be found in accounting methods, but more in assessing the relevant, and relative, levels of capability in our assets. A way of doing this is essential to managing and growing our human capital.

So we need both HRM and HCM. They are different mindsets and many traditional HR professionals find a human capital approach challenging. But it is at the heart of what an organization is there for – nothing could be more strategic.

About the author

Andrew Mayo is a consultant, speaker, writer and facilitator in international HRM and HCM. He is Associate Professor of Human Capital Management at Middlesex Business School, and Director of Mayo Learning International, a consultancy specializing in talent and human capital management. He is President of the HR Society in the UK and the author of several books. Andrew Mayo can be contacted at: andrew.mayo@mayolearning.com