Human Capital Management

1st module

Human Capital : Employees are the lifeline of an organization. An organization can’t survive if
there are no employees. Organization runs with the help of individuals who contribute in their own way in
its success and productivity. Employees spend maximum part of their day in offices and strive hard to
achieve the goals and objectives of the organization. Employees ought to be motivated from time to time
so that they develop a sense of attachment towards their organization and also deliver their best.

The word “Human Capital” was introduced by A. W. Lewis in “Economic Development with Unlimited
Supplies of Labour”.

Human capital plays a crucial role in increasing the productivity and output of an organization.

Human capital management (HCM) is a set of practices related to people resource

management. These practices are focused on the organizational need to provide specific
competencies and are implemented in three categories: workforce acquisition,
workforcemanagement and workforce optimization.

Human Capital management refers to managing an organization’s employees for them to

contribute significantly in the overall productivity of organization. In a layman’s language managing
workforce of an organization refers to human capital management.

Human Capital Management is defined as the process of acquiring, training, managing, retaining
employees for them to contribute effectively in the processes of the organization.

In simpler words, upgrading the existing skills of an employee and extracting the best out of him/her refers
to human capital management.

Importance of Human Capital

Management
Human Capital Management is essential for hiring, managing, training and retaining talented and
high performing employees.

human capital management is important for:

 Hiring the right talent

 Orienting him/her to the organization
 Making a new employee feel comfortable
 Training employees in order to constantly upgrade their skills
 Retaining employees
 Making employees self sufficient and prepare them for adverse conditions
Benefits of Human Capital
Management
Human Capital management refers to the management of employees, hiring right employees, training
them, upgrading their skills, utilizing their knowledge to the fullest, eventually benefitting the organization.

Benefits of human capital management:

 Human capital management helps in extracting the best out of employees : It also plays an
instrumental role in increasing the efficiency of employees, making them an indispensable
resource for the organization.
 Human Capital Management enables the human resource professionals to hire the right
candidate for the right role. 
 Human Capital management enables free flow of information between superiors and
subordinates.
 Trainings and skill development activities are essential for upgrading the existing
knowledge of employees. 
 Human Capital Management highlights the importance of soft skills and personality
development for employees. 
 Human Capital management helps the employees to improve in areas where they feel they
are lacking. 

Human Resource Management

Functions
Some of the major functions of human resource management are as
follows: 1. Managerial Functions 2. Operative Functions 3. Advisory
Functions.
Human Resource or Personnel Department is established in most of
the organisations, under the charge of an executive known as Human
Resource/Personnel Manager. This department plays an important
role in the efficient management of human resources.

1. Managerial Functions:
The Human Resource Manager is a part of the organisational
management. So he must perform the basic managerial functions of
planning, organising, directing and controlling in relation to his
department.

There functions are briefly discussed below:

1. Planning:
To get things done through the subordinates, a manager must plan
ahead. Planning is necessary to determine the goals of the
organisation and lay down policies and procedures to reach the goals.
For a human resource manager, planning means the determination of
personnel programs that will contribute to the goals of the enterprise,
i.e., anticipating vacancies, planning job requirements, job
descriptions and determination of the sources of recruitment.

The process of personnel planning involves three essential steps.

Firstly, a supply and demand forecast for each job category is made.
This step requires knowledge to both labour market conditions and
the strategic posture and goals of the organisation.

Secondly, net shortage and excess of personnel by job category are

projected for a specific time horizon.

Finally, plans are developed to eliminate the forecast shortages and

excess of particular categories of human resources.

2. Organizing:
Once the human resource manager has established objectives and
developed plans and programs to reach them, he must design and
develop organisation structure to carry out the various operations.
The organisation structure basically includes the following:
(i) Grouping of personnel activity logically into functions or positions;

(ii) Assignment of different functions to different individuals;

(iii) Delegation of authority according to the tasks assigned and

responsibilities involved;

(iv) Co-ordination of activities of different individuals.

3. Directing:
The plans are to be pure into effect by people. But how smoothly the
plans are implemented depends on the motivation of people. The
direction function of the personnel manager involves encouraging
people to work willingly and effectively for the goals of the enterprise.

In other words, the direction function is meant to guide and motivate

the people to accomplish the personnel programs. The personnel
manager can motivate the employees in an organization through
career planning, salary administration, ensuring employee morale,
developing cordial relationships and provision of safety requirements
and welfare of employees.

4. Controlling:
Controlling is concerned with the regulation of activities in accordance
with the plans, which in turn have been formulated on the basis of the
objectives of the organisation. Thus, controlling completes the cycle
and leads back to planning. It involves the observation and
comparison of results with the standards and correction of deviations
that may occur.
Controlling helps the personnel manager to evaluate the control the
performance of the personnel department in terms of various
operative functions. It involves performance appraisal, critical
examination of personnel records and statistics and personnel audit.

2. Operative Functions:
The operative functions are those tasks or duties which are specifically
entrusted to the human resource or personnel department. These are
concerned with employment, development, compensation, integration
and maintenance of personnel of the organisation.

The operative functions of human resource or personnel

department are discussed below:
1. Employment:
The first operative function of the human resource of personnel
department is the employment of proper kind and number of persons
necessary to achieve the objectives of the organisation. This involves
recruitment, selection, placement, etc. of the personnel.

2. Development:
Training and development of personnel is a follow up of the
employment function. It is a duty of management to train each
employee property to develop technical skills for the job for which he
has been employed and also to develop him for the higher jobs in the
organisation. Proper development of personnel is necessary to
increase their skills in doing their jobs and in satisfying their growth
need.
3. Compensation:
This function is concerned with the determination of adequate and
equitable remuneration of the employees in the organisation of their
contribution to the organisational goals. The personnel can be
compensated both in terms of monetary as well as non-monetary
rewards.

4. Maintenance (Working Conditions and Welfare):

Merely appointment and training of people is not sufficient; they must
be provided with good working, conditions so that they may like their
work and workplace and maintain their efficiency. Working conditions
certainly influence the motivation and morale of the employees.

5. Motivation:
Employees work in the organisation for the satisfaction of their needs.
In many of the cases, it is found that they do not contribute towards
the organisational goals as much as they can. This happens because
employees are not adequately motivated. The human resource
manager helps the various departmental managers to design a system
of financial and non-financial rewards to motivate the employees.

6. Personnel Records:
The human resource or personnel department maintains the records
of the employees working in the enterprise. It keeps full records of
their training, achievements, transfer, promotion, etc. It also preserves
many other records relating to the behaviour of personnel like
absenteeism and labour turnover and the personnel programs and
policies of the organisation.
7. Industrial Relations:
These days, the responsibility of maintaining good industrial relations
is mainly discharged by the human resource manager. The human
resource manager can help in collective bargaining, joint consultation
and settlement of disputes, if the need arises. This is because of the
fact that he is in possession of full information relating to personnel
and has the working knowledge of various labour enactments.

The human resource manager can do a great deal in maintaining

industrial peace in the organisation as he is deeply associated with
various committees on discipline, labour welfare, safety, grievance,
etc. He helps in laying down the grievance procedure to redress the
grievances of the employees. He also gives authentic information to
the trade union leaders and conveys their views on various labour
problems to the top management.

8. Separation:
Since the first function of human resource management is to procure
the employees, it is logical that the last should be the separation and
return of that person to society. Most people do not die on the job. The
organisation is responsible for meeting certain requirements of due
process in separation, as well as assuring that the returned person is in
as good shape as possible. The personnel manager has to ensure the
release of retirement benefits to the retiring personnel in time.

3. Advisory Functions:
Human resource manager has specialised education and training in
managing human resources. He is an expert in his area and so can give
advise on matters relating to human resources of the organisation.

3. Advisory Functions:
Human resource manager has specialised education and training in
managing human resources. He is an expert in his area and so can give
advise on matters relating to human resources of the organisation.

1. Advised to Top Management:

Personnel manager advises the top management in formulation and
evaluation of personnel programs, policies and procedures. He also
gives advice for achieving and maintaining good human relations and
high employee morale.

2. Advised to Departmental Heads:

Personnel manager offers advice to the heads of various departments
on matters such as manpower planning, job analysis and design,
recruitment and selection, placement, training, performance
appraisal, etc.

Difference Between HRM and HRD

Human Resource Management (HRM) is a branch of management; that
is concerned with making best possible use of the enterprise’s
human resources, by providing better working conditions, to the employees. It
involves those activities that arrange and coordinates the human resources of
an entity. Further, it aims at maintaining good relations at various levels of
management.

Human Resource Development (HRD) is a wing of HRM that keeps

focusing on the growth and development part of the organisation’s manpower.
There are many people, to whom HRM and HRD convey the same meaning,
but this is not true. We have compiled an article here, to make you understand
the differences between HRM and HRD.

BASIS FOR HRM HRD

COMPARISON

Meaning Human Resource Human Resource

Management refers to Development means a
the application of continuous development
principles of function that intends to
management to manage improve the
the people working in performance of people
the organization. working in the
organization.
What is it? Management function. Subset of Human
Resource Management.
Function Reactive Proactive
Objective To improve the To develop the skills,
performance of the knowledge and
employees. competency of
employees.
Process Routine Ongoing
Dependency Independent It is a subsystem.
Concerned with People only Development of the
entire organization.
HRD is a sub-function of
Nature HRM.
HRM is a management

function.

HRD goals are usually

Goal The objective of HRM is connected with skill
development, knowledge
related to improving the enhancement, and
overall performance of increasing the competency
of employees
employees.
HRD functions may be
Levels of formality HRM functions are informal as in
 mentorships, employees
generally formal and are receive coaching from
superiors, usually
applied via managers.
classroom/laboratory

training, etc.

Sub Systems of HRD

The following thirteen important sub systems

(1) Performance Appraisal:

Performance appraisal is a process of rating or ensuring the
performance of an employee of his job. Performance appraisal is the
assessment of an individual’s performance in a systematic way. The
performance of an employee is measured against the factors such as
knowledge of job, quality and quantity of output, initiative,
supervision, leadership qualities, cooperation, dependability, health,
versatility, judgment etc. The purpose of appraisal is to assess the
present position of efficiency of employee in order to determine the
need for training.

The performance appraisal process consist of:

(a) Job analysis.

(b) Establishing standards of performance.

(c) Communicating performance standards to employees.

(d) Measuring actual performance.

(e) Comparing actual performance with standards and discuss with
employees.

(f) Initiating corrective actions, if necessary.

(2) Potential Appraisal:

The object of potential appraisal is to develop latent abilities of
individuals. Potential appraisal provides vital information about
individuals to prepare career plans for them. Potential appraisal
evaluates the leadership abilities and potentials of the individuals. It
ensures a good match between employees potentials and the job.
Nowadays organisations are diversifying their operations involving
vital changes. To meet these requirements they need people with
courage and capabilities to meet the challenges. 

(3) Career Planning:

Planning for Career makes employee grow in his working life time
while unplanned careers flopped. The first and foremost step in career
planning is to make one’s SWOT analysis. He should assess his
strength, weaknesses, opportunities and threats.

One must plan his career by means of education, training, job search
and should acquire work experience. Employee should trace the career
paths in the organisations available and compare them and join the
organisation with full devotion. The organisation help the young
promising people for they provide necessary information through
various ways as per their needs to plan their career.
(4) Training:
Training is an attempt to improve current or future employee
performance by increasing an employee’s ability to perform through
learning usually by changing the employee’s attitude or increasing his
or her knowledge. The need for training is determined by the
deficiency of employee’s performance, Training process include;
acquiring skills, concepts, attitudes for increasing effectiveness in
doing a specific job or jobs. Training provides necessary impetus to
implement change, improve efficiency, managerial effectiveness and
increase productivity.

(5) Organisation Development:

Organisation Development intend to change beliefs, attitudes, values
and structure of organisations that they can better adapt to new
technologies, markets and challenges and the dizzying rate of change
itself. Organisation is an open system and therefore must develop
itself by adopting various changes to meet the challenges thrown out
by the constantly changing environment.

(6) Rewards:
Rewarding employees for their excellent professional performance
over and above their usual wages and salaries boost up their morale
and encourage others to work hard. Reward systems are to be looked
after by HRD. By rewarding hard work employees are motivated
further. Output goes up. It leads to maximum utilization of available
human resources to enhance productivity. Rewards are one of the
ways to frustration, depression and dissatisfaction from the
employees. Slow work tendencies can also be removed.

Reward system encourages employees to seek self development

through their own ability. Rewards system is considered as the
quickest way to increase productivity. Rewarding is motivational
factor. 

The rewards that organisation can allocate is direct compensation and

indirect compensation. These can be distributed on the basis of an
individual, group or organization-wide.

Intrinsic rewards received by individuals themselves are the result of

employee’s satisfaction with his job e.g.: job enrichment, redesigning
of work to increase personal work to the worker. Intrinsic reward is a
pleasure or value received from the content of a work by the employee.

Extrinsic rewards, on the other hand, are received by the employee

including direct compensation, indirect compensation and non
financial rewards like higher basic pay Overtime wages, bonus, profit
sharing, opportunities to purchase stocks pay for holidays etc. 

(7) Counseling:
Counseling is an essential instrument of HRD. It serves several
purposes. Counseling is a service provided to the employees regarding
their personal problems. For this purpose services of professional
counselors need to be obtained. It reduces employee turnover,
absenteeism, tardiness and helps in strengthening the superior
subordinate & relationship, understanding problems of juniors and
seniors thereby facilitating better communication and effective
decision making.

(8) Quality Circle:

Quality circle is a small group of people doing same or similar work.
They meet voluntarily together on regular basis for an hour per week,
during office hours under the leadership of their supervisor and
trained to identify, analyze and solve some of the problems of their
work and submit solutions to management. They also implement the
solutions themselves if possible. It is a participative management
system. It promotes understanding and respect between managers and
subordinates. It helps in building upon the hidden potentials of
human resources.

The objectives of quality circles are summarized below:

(1) It is people building philosophy to develop, enhance and use
human resources effectively.

(2) Development of others through the members of quality circle.

(3) Promotion of participative management.

(4) Improvement of supervisory skills of employees.

(5) To promote interpersonal skills and thereby seek resolution of

conflict.

(6) Encouragement of creativity and problem solving techniques.

(7) To promote leadership qualities among employees.

(8) To develop quality improvement consciousness among the
employees.

(9) To develop group efforts.

(9) Role Analysis:

Role is a set of expected behaviour patterns attributed to a person
occupying a given position in a unit. Every employee has a role to play.
Everyone does not have to be consistent and regular in one role.
Employees have to play diverse roles both on and off the jobs. To
understand the behaviour of a person, it is essential to know what role
he is currently playing. The attitude and behaviour of a person vary
with the role identity. Roles change according to the circumstances.

(10) Human Resource Planning:

H. R. Planning is an integral part of business and organisation
planning. It concerns with detailed planning to establish the future
human resource requirements at every level by skill and category. The
quality of human requirements plan depends on the quality of the
analysis and data on which it is based. A reasonable degree of accuracy
is essential in the business projections and operations from which HR
requirements are to be determined.

(11) Procurement and Placement:

It is one of the important sub systems of HRD. Procurement of human
resources is done through recruitment and selection. Vacancies are
filled through these two methods. Placement is the process of
assigning the procured candidates with suitable jobs. It is placing right
persons at right jobs to obtain the best results.

(12) Job Rotation:

Jobs are rotated among the employees to increase their knowledge and
skill required for performance of various jobs. This is essential because
during absence or leave of employees work should not suffer.

(13) Quality of Working Life:

Employees are the assets of an organisation. To extract the best from
employees adequate, healthy and hygienic working conditions should
be provided. This increases the productivity. Unhygienic and
inadequate working conditions will adversely affect the physical and
mental health of the employees affecting their efficiency. The
enterprises should be very careful about quality of working life.