HomeProductsHRM/PayrollDefinition and Important Role of Human Capital in Companies

Definition and Important Role of Human Capital in Companies

It is common knowledge that human resources, both human resources and human capital, have an essential role in supporting the operational activities of a company or organization. Even so, there are still many companies that do not fully understand this. Some companies out there still regularly replace employees in almost all the divisions they have.

Because human resources are crucial in supporting the continuity and development of the company, the role of human capital appears. However, many companies still do not know the importance of Human Capital Management (HCM). So in this article, we will discuss the meaning and importance of it.

Definition of Human Capital

Human capital is an effort to manage and develop human resources to achieve an essential level of higher performance (Chatzkel, 2004). This explains that HCM believes that the development and management of human capabilities in the context of resources should focus on improving skills and knowledge so that workers can support the development of the company or organization.

In addition, the main concept of human capital in Becker (1993:71) is that people are not only resources but also capital that generates returns. Namely, the cost of each expenditure for the development of the quality and quantity of capital is an investment activity.

The Difference between Human Capital and Human Resources

Based on its understanding, human resources are company assets that function as facilitators in achieving company goals. In comparison, HCM views people as a critical resource in the organization. HCM has always focused on strategic design to maximize the skills and talents of human resources to carry out the company’s business strategy.

Human resource management has several differences from human capital. The most notable differences are in three aspects, namely viewing angle, focus, and size. These differences will affect the design of work plans, organizational strategies, provision of facilities, analysis of employee performance and productivity, and other things.

Human Capital Tasks

After knowing the meaning and differences, then we will discuss what tasks exist in human capital:

Recruitment

HCM must recruit employees. It starts from placing job advertisements to conducting written tests and interviews. Signing employment contracts, termination, and reduction of employees is also one of his duties.

Onboarding

After the recruitment process is complete, the next task is to conduct onboarding. Provide briefing on how the system works in the company, the regulations, and determine the job description for each new employee.

Training and development

Usually, in a company, new employees with a specific position need to do previous training. The role that employees will carry out runs according to the provisions and wishes of the company. In addition, several developments were also carried out for old employees. All of these things are the job of HCM.

Retain employees

In a company, if employees have good performance, the company will likely extend their contract. It is one of HC’s duties to retain its employees. Of course, if the employee has work performance, that makes the company happy.

Assessing employee performance

For a growing company, employee productivity is a determining factor. Due to the increasing workload, HC must determine how to distribute the workload. Whether by adding employees or by transferring to existing employees by telling them to do overtime. Therefore, the company’s performance appraisal is critical for HC to carry out.

Manage data

Social security claims, employee leave requests, employee salary forms, and others are data that HCM must process. It starts from checking and re-validating whether the data is appropriate or not so that errors do not occur.

Read related article: Understanding Explicit Cost in Business.

Types of Human Capital

Human capital can be developed in HR, which consists of various types. Here’s the review:

General Human Capital Management

The general type is the type of HC developed in human resources with executive management level or higher. Usually, this type always focuses on developing managerial competencies, decision-making abilities, functional skills, and leadership.

General human capital management is crucial for companies to own and develop so that their executives can interact more optimally with business colleagues or investors of the company concerned.

Strategic Human Capital

Secondly, it includes strategic skills and expertise gained through experience when dealing with specific situations or conditions. Usually, the skills that HC will develop are strategic abilities to organize and manage finances regarding budget cuts or budgets to be more efficient due to unfavorable financial conditions.

Industry Human Capital

Thirdly, there is the human capital industry which is related to all knowledge about industrial aspects. Generally, it includes industry in a technical, supplier, or regulatory context. Even so, this type applies to companies with operations that refer to the same or similar rules.

Relationship Human Capital

Next is relationship human capital, which focuses on improving the intelligence of human resources in communicating and creating good and effective interactions with other people. With such qualified communication and interaction skills, the implementation of their duties will be smoother. Employee performance and performance will increase, and the company will grow.

Company-Specific Human Capital

Lastly, there are company specifics. It is a type of HCM related to the structure and work culture in a company. It relates to the rules and policies owned by a company. Employees are required to be more adaptable to all things that are internal provisions of the company. So that later the employees carry out their duties and responsibilities according to the vision, mission, and lead to the development and progress of the company will be easier to do.

The Important Role of HCM for Companies

After knowing the types and duties of HCM, we should realize that human capital has a vital role for a company. Media Shift, stated that recent studies had shown a direct correlation between increasing HCM and the fiscal health of an organization. The success of HCM is considered to have an impact on a national scale. In Kompas media, the Minister of Finance of the Republic of Indonesia, Sri Mulyani, said that apart from infrastructure, investing in HCM, including in education, would increase labor productivity and efficiency. That will ultimately accelerate Indonesia’s growth.

Conclusion

Maybe that’s the discussion about Human Capital Management. There are slight differences between the concepts of HRM and HCM. These differences can be seen from three categories: point of view, focus, and size. We know that this is one of the most important aspects of a company. Of course, every company must have an excellent HCM to continue to grow later.

If you are interested in giving your company the best human resource processing, please use our products. Hashmicro provides ERP Software for Human Resources Management. All types of work include calculating salary and taxes, managing leave and attendance, Expense claims, and more operations with the best HRIS in Singapore. Click here to register and work with us.

Interest in getting savvy tips for improving your business efficiency?

Afkar Azhfar
Full-Time Internship Content Writer at HashMicro. Always explore new things to develop content writing skills.

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