Why the transition from HR to human capital is important

Human resource management and human capital management are terms, which are often considered interchangeable. However, they are not as similar as they appear to be. Although many would argue that the difference just lies in ‘resource’ and ‘capital’, the dissimilarities run deep. Today, it has become imperative to look at human resources as human capital, as the former needs to be more people centric. However, before we go further, it is important to know what HRM and HCM are, and how similar or dissimilar they are.

HRM vs HCM

The word ‘resource’, implies a stock or supply of money, material, staff required by a person or an organisation for proper functioning. So, broadly, human resource encompasses individuals of a company who take care of the employees. Apart from that, it also deals with payroll, tax optimisation, working-hour regulations, compensation, recruitments and much more. On the contrary, ‘capital’ is defined as the money needed for investments or for running an organisation and ensuring a high output. Human capital management is all about aligning employees with the goals of a company. It also refers to managing the employees in such a way that it improves an employee’s life within the organisation and beyond.

Organisations that have a strong culture and invest in people are the ones that are long lasting.

The basic difference between HRM and HCM, therefore, is that while HRM functions to achieve business goals in terms of employee regulations — salary hikes, perks, compensations and benefits — HCM believes in improving the core reason behind the existence of a business, that is, its employees, for a fulfilling outcome and of course, success. In a crude sense, HRM looks at employees as costs incurred by a company, while HCM considers them as assets who can be honed further for better outcomes.

In today’s time, when the job market is going haywire and workstations have moved home, ‘empathy’ has become the buzzword. Showing empathy can easily fall under HCM, as it emphasises on understanding the situation around and taking steps to make sure that employees are looked after in such a way that the business benefits. It develops an employee’s knowledge, skills, learning and development, which, in turn, helps the organisation achieve its goals.

“Many young start-up companies in the Silicon Valley and India have started referring to the people function as the ‘people success function’”

Basically, HCM looks at employees as assets whose present value can be estimated and future value can be designed by meticulous investments. Human resources is a catch-all term for employee- related matters in an organisation, from payroll to engagement initiatives.

Back in 1996, Infosys had started a new practice of evaluating its employees on the basis of how much they will earn for the company, based on present earnings, if the retirement age is set at 60. Many of these employees were valued at Rs 1 crore. The organisation values its employees on its balance sheets. That also gives a fair idea of the ROI each and every employee is providing to the company.

Now, the question is, ‘How can HR transit into HC in this age, to see employees as investments?’

Saba Adil, chief people officer, Raheja QBE General Insurance, asserts that people are the differentiators in any institution. “Products and distribution models are easy to copy, but what cannot be copied is the people, the culture and unique capabilities of an organisation. Getting the right people, investing in them — training them and maximising their potential, not just by virtue of promotions but knowing how to unleash their true potential — looking at them as an investment for the future is the right way to function. Today, when we speak about customer happiness and eccentricities, employee eccentricities and happiness come first. Organisations that have a strong culture and invest in people are the ones that are long lasting.” She also believes that productivity is an outcome, just as attrition. The need is to prudently look at them as investments and future value.

The mindset of the senior leadership and core beliefs of an organisation also govern how employees are viewed. Some believe they need to be pushed and driven to fulfil their goals, while others believe they have the potential to achieve their goals on their own.

Balachandar N, business & HR advisory, informs, “Many young start-up companies in the Silicon Valley and India have started referring to the people function as the ‘people success function’. This is borrowed from ‘customer success function’, I believe. If one has a mind-set that people success is one’s job, one is helping everyone to succeed at work. By doing so, one is actually honouring the term ‘human capital’. Young companies are realising that they cannot grow unless they help people succeed in their roles. It all becomes positively inclined and about appreciating the capital.”

He also believes digitisation will come in handy in making human capital management a true function. “That will bring in a lot of transparency in HR, and therefore, people will feel valued. Incentives and compensation will go digital and people will know who is drawing what. Digital brings equity to the system. Then, everyone is equal in the eyes of the organisation,” he opines.

Everything boils down to how an organisation views its employees. Whether they are considered just as a means to an end, or real contributors to a solid outcome, will decide how they are treated in an organisation. Hence, converging HRM with HCM could do the trick.