Regardless of size, industry, revenue or geographic location, every organization has one essential common denominator: the people. Representing both the most significant expense and the most important asset, employees have the most direct and immediate impact on operations. As such, companies that understand and recognize people as their most valuable asset tend to achieve the highest levels of success.
When resourced effectively and integrated into the business, human resources signify the epicenter of an organization, leading efforts to find the best talent and supporting employees to keep them engaged, motivated and empowered.
Human capital life cycle
Five elements comprise the human capital life cycle. When successfully developed and implemented, these components enable organizations to become more efficient, scalable and effective:
1. Organization and strategy.
The first pillar of the human capital life cycle focuses on aligning human capital with the organization’s business activities. While an effective HR strategy stems from a broader organizational strategy, there is no single optimum approach; instead, it is critical to vary goals based on the best manner to achieve business success. For example, some HR strategies seek a high level of employee engagement that eventually contributes to retention, while others choose to minimize employee labor costs by improving efficiency. Yet without an achievable and definitive strategy that includes identified champions to support it, HR will remain just a transactional function. Ideally, the strategy and vision will support the future-state model and alignment of the organization, drive the underlying business goals, and obtain the desired organizational culture. Ultimately, an organization’s strategy provides a focal point around which employees can orient themselves. It should define the organization’s goals, what employees should be striving toward, and most importantly, why it should matter.
2. Talent management.
The second pillar of human capital encompasses the processes related to how an organization attracts, develops, motivates, and also, retains employees. Investment and expertise are critical in the talent management space, as these initiatives and activities touch employees at every step of their career with an organization. A commitment to talent management supported at the executive level becomes an element of company culture, further bolstering success in attracting and retaining the best employees.
Another key element of human capital within an organization is technology. While employees own the job roles and responsibilities within the business, technology serves as the anchor for how people and business processes work together. The transformation and integration of HR systems are necessary to streamline and align processes, freeing up time and shifting focus from transactional to strategic activities. Human error can be significantly reduced by implementing automated processes and workflows.
Technology touches all parts of the employee life cycle, from using applicant tracking systems (ATS) for talent acquisition and sourcing candidates, to seamlessly opening and approving requisitions, to the ability to manage workflows for interviewing and selection. For example, the integration between ATS and human capital management systems (HCMS) allows for paperless onboarding while eliminating the need to perform data entry multiple times to capture new hire and payroll information.
Technology can also be used to set employee goals, track performance and administer payroll. The automation of these tasks provides real-time results and measurements, as well as consistent processes. Executive leadership teams find value in both tangible (real-time key performance indicators) and intangible (a consistent candidate and employee experience) benefits that come from the investment in human capital technology.
4. Total rewards.
Another pillar of human capital, total rewards should be a top priority for any organization. This broad category covers not only base and incentive pay, but also noncash compensation, group and retirement benefits, and other employee perks. Because humans are innately self-driven (“what’s it in it for me?”), creating a dynamic culture and engaging workplace carries great importance.
Yet ultimately, in a competitive market, rewards create the supreme value. Employees naturally flock to and remain in environments where they feel taken care of. For this reason, developing competitive benefit and compensation plans for employees is critical to successful engagement. When this belief is lost or when employees believe employers desire their output but are not willing to invest in and reward them, organizations risk decreased morale and high turnover.
5. Human capital compliance and reporting.
The final pillar of the human capital life cycle is HR compliance and reporting, which affects organizations of every size. Understanding HR risk management is critical to ensuring that an organization is equipped to meet compliance obligations. Rigorous policies and procedures are absolutely essential for an organization to maintain, regardless of circumstances. A focus on ever-changing federal, state and local labor laws—as well as global compliance—must be demonstrated in practice and policy. Without a structured and knowledgeable HR function, organizations put themselves at great financial and irreparable reputational risk.