Updated: February 28, 2025
Whether you produce physical products or provide a service, people make it all possible. In this sense, “people” refers to employees, workers, or team members. Production and profitability likely won’t be the best they can be without a qualified and happy team.
People management essentially falls into two categories: human capital management (HCM) and human resource management (HRM). Each process focuses on managing employees in an organization but differs in approach.
If you are a new employer or have had the doors open for a while and are looking for a different approach to building a team, HCM and HRM may be something you’ll want to learn about. In this employer’s guide, we’ll define each process, key differences to be aware of, and determine which is best in the debate between human capital management and human resource management.
Human capital management takes a developmental approach. The goal of HCM is to maximize the value of employees to an organization. It does this by aligning employee skills with organizational objectives.
Essentially, the human capital management strategy uses effective recruitment strategies and training programs to increase the value of human capital to a business. HCM professionals want to recruit a workforce that stays and grows with the company.
Like other core HR processes, HCM uses data-driven decision making. Through employee data management and insight into workplace trends, HCM professionals can stay ahead of compliance issues and talent needs.
When comparing human capital management versus human resource management, it’s important to acknowledge the similarities in objectives. The goal of both processes is to maximize the cost and profitability of a workforce. However, HCM focuses on increasing the economic value of employees as assets. That focus drives its core objectives:
The HCM approach is all about leveraging human capital to achieve strategic goals and contribute to business success. The goal of the approach is to have employees who grow with and enrich the organization.
Traditional HR functions more as an administrative process than the more hands-on approach of HCM. Human resource management is about aligning a company’s workforce with its goals to enhance its overall performance.
Like HCM, HRM involves attracting, managing, and retaining employees. Still, it focuses more on driving business growth and success, viewing employees as a cost factor rather than tangible and lucrative assets.
Ultimately, HRM focuses on controlling employee-related costs. It takes a more regulatory role than an HCM’s developmental position.
In terms of human capital management vs. human resource management, when looking at the objectives, it’s hard to differentiate between the two. Both management processes focus on attracting and retaining employees, developing skills and competencies, improving productivity, ensuring compliance, and increasing business growth and profitability.
That said, the scope, emphasis, and focus of these objectives are different. HRM focuses on administrative tasks and day-to-day operations, such as payroll. The emphasis of HRM is compliance with labor laws and regulations. Finally, HRM focuses on managing the employee lifecycle, from onboarding to offboarding.
Regarding HRM vs. HCM, HRM focuses on the “how” of managing people, and HCM focuses on the “why.” HRM is administrative, while HCM is more hands-on.
Human capital management versus human resource management essentially comes down to three key differences. Understanding these characteristics can help businesses better align human capital strategies with business objectives.
HCM is a broader, more strategic approach to workforce management. Employees are seen as valuable assets that have a compounding benefit for an organization. With proper management and involvement, a company can increase employee potential, allowing team members to contribute to its overall success. HCM is about investing in a workforce to develop talent to meet a company’s future needs and demands with a developing talent pool.
When considering HR basics for SMBs, the process is primarily administrative, focusing on the day-to-day. HRM includes tasks like payroll, benefits administration, and labor law compliance. While none of this points to a disinterest in the value of employees, it only demonstrates a slight disconnect between the business and its workforce.
HCM strongly emphasizes employee development. The managerial view is that employees who advance within a company contribute to its future productivity and profitability. By investing in employee development through training, coaching, and mentoring, HCM aims to fulfill an organization’s future talent needs. In the process, it fosters career growth and improves employee engagement and performance.
HRM includes elements of employee development, but its primary concern is ensuring compliance with legal and regulatory requirements. Ultimately, HRM focuses on protecting the organization, its workforce, and limiting risks and liabilities. Its critical roles include employee relations, risk management, and data privacy.
Both HRM and HCM use technology and analytics. However, HRM traditionally relied more on manual processes and paper-based systems. That said, modern HRM incorporates technology in a couple of ways:
HCM leverages more advanced technologies and analytics. For example, human capital management software integrates various HR functions such as talent acquisition, performance management, training, development, and workforce analytics.
HCM also uses big data and analytics to gain insights into industry and workforce trends or to predict future needs. The data and systems also help HR professionals make decisions about talent management.
Finally, HCM embraces newer technologies like artificial intelligence and machine learning. These developing tools can help professionals automate tasks, limit human errors, and eliminate redundancies — ultimately improving predictive accuracy.
There is one clear winner in the human capital management versus human resource management debate: HCM. While HRM is an efficient administrative method, it fails to see a workforce as individuals and valuable contributors to an organization’s success. If you are ready to upgrade your business’s people management approach, visit OnPay to see all the different ways a comprehensive HCM platform can help you take your organization to the next level.
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Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.
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