Importance of Human Capital Management

Importance of Human Capital Management 600 401 Balance Point Team

What is Human Capital?Iris is the owner of a budding floral business. She sources the best suppliers, rents prime retail space, invests in branding–including a new website and custom packaging.

She’s set aside a modest budget for advertising, and even utilizes the latest technology to help her process orders.

She does everything right to grow her business, except one thing.

No longer can she rely on the help of family to run the business. She needs to hire a staff, but is hesitant to expend the money and resources needed to recruit, compensate, and train competent employees.

Iris’ negligence in acquiring and managing human capital will cause her business to wilt away.  

What is Human Capital?

By definition, human capital means, “employees, and all the knowledge, skills, habits and experience that they have, which makes them valuable to a company or the economy.”

The term has been used in economics as early as the turn of the twentieth century, but it wasn’t mainstream until the 1960’s when Nobel Prize-winning economist Gary Becker published a book on the topic.

At that time, the concept was often criticized by business analysts who thought the concept of labeling people “capital” implied slavery. It’s easy to see why. Becker wrote that almost everything had its price and should be viewed as “consumption goods”— even children to their parents!

An Organization’s Greatest Asset

Organizations need human capital to function and prosper. It’s the employees who determine how much a business can grow, innovate, and accomplish its mission. Human capital management is how an organization goes about directing and developing its people. The more strategic the approach, the more productive the workforce.

Organizations must invest in their employees to get the most from them. In his book, Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education, Becker alluded to this when he observed and stated “the quality of children is directly related to the amount spent on them.”

Human capital management is important because it helps organizations acquire, cultivate, and retain their greatest asset, their people.


The goal is to hire candidates that possess the best skills and experience for the job. Hiring “best-fits” from the start cuts down on training needed to groom employees. It also lessens the odds of an employee leaving for a better offer. Offering competitive salaries, benefits packages, and other perks attracts the best talent. As the saying goes, you get what you pay for.    


Even when the most desirable employee fills a position grooming is necessary to get him/her indoctrinated into the organization’s culture. Providing opportunities for employees to learn and grow not only accomplishes this, it builds an engaged workforce, and helps with the next function…


When employees are adequately compensated, invested in, and feel valued they are more productive and loyal to the company. When an employee leaves it costs about 33% of their annual salary for an organization to hire a replacement. Good human capital management practices reduce costly turnover and optimizes talent at every stage of the employee lifecycle.

Human capital management technology is effective in streamlining all tasks related to acquiring, cultivating, and retaining your workforce. This includes applicant tracking, onboarding, benefits administration, payroll, time and attendance, learning management, and more.

The use of a single, integrated platform provides insightful reporting capabilities and easy-to-read dashboards to help you be more strategic in your efforts. 

Schedule an appointment with one of our Human Capital Management Consultants to see how it can help you better manage your organization’s human capital. 

What Every Growing Business Needs to Know

The term human capital management (or HCM) is much more than human resources jargon. It is an essential set of practices and processes organizations utilize to manage the employee life cycle.

Learn how you can use it to help leverage your business with our free resource. Get your free copy here. 

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