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Human capital management (HCM) is evolving with the times.

As defined by Gartner, HCM is “a set of practices … focused on the organizational need to provide specific competencies in three categories: workforce acquisition, workforce management, and workforce optimization.” The discipline has changed significantly over the course of the last decade, driven in large part by advances in technology and the changing expectations of the workforce.

The first phase of HCM was centered on the automation of payroll, benefits administration, recruiting, onboarding, and other HR processes, with the goal of consolidating everything in one comprehensive digital database. While this was certainly a necessary and useful step, HCM 1.0 simply replicated paper-based systems without fundamentally changing them.

HCM 1.0 was soon followed by HCM 2.0, which integrated enterprise resource planning and other talent management features in an attempt to streamline processes and improve efficiency across organizations. HCM 2.0 also started to leverage the popularity of social media in new types of communication tools and gamification features.

Now, people are talking about the next generation: HCM 3.0. This phase of HCM is characterized by the movement of software platforms into the cloud and the opening of a new realm of real-time analytics capabilities. The market has been flooded with a host of new software platforms and applications that utilize AI and machine learning to measure and improve employee productivity. Many of these tools, either intentionally or not, place individuals and teams into competition with one another. These tools operate from the underlying belief that if employees demonstrate greater productivity, it will translate into better business outcomes.

The Economics of Talent

According to SHRM, many of the changes we’ve seen in HCM over the last decade are due to a tightening of the supply of top talent:

“Ten years ago, companies surveyed by the SHRM Foundation said their top future challenges were succession planning and providing leaders with the skills needed to be successful. Today, employers say the increasing competition for skilled workers is a top concern. As a result, the workplace is much more employee-focused and individualized. That’s pushing employers to, among other things, provide flexible schedules to people with family obligations or give tuition help to entry-level workers so that they can get a new job — somewhere else.”

Industry analyst Josh Bersin of Bersin by Deloitte believes employees can be viewed as “appreciating assets” who produce increasing value to the organization over time. This explains why losing them is so expensive: According to Bersin, the cost of losing an employee can be as much as 1.5-2 times the employee’s annual salary.

Jack Altman, CEO of Lattice, has created a simple formula to measure the overall cost of employee turnover to an organization: multiply the number of “regrettable departures” by the average cost of those departures. Altman offers the following example:

“If you are a 150 person company with 11 percent annual turnover, and you spend $25,000 per person on hiring, $10,000 on training and development, and lose $50,000 of productivity opportunity cost on average when refilling a role, then your annual cost of turnover would be about $1.57 million.

“Reducing this [turnover] by just 20 percent, for example, would immediately yield over $300,000 in value. And that says nothing of the emotional headache and cultural drain felt from losing great people.”

In order to be effective, HCM 3.0 needs to help organizations retain great talent and truly engage employees. This will require new processes and tools that match the current needs of the workforce, rather than those that merely mirror how things have always been done. For example, many organizations are starting to eliminate annual performance reviews in favor of ongoing, continuous feedback. According to SHRM, “85 percent of millennials would feel more confident in their current positions if they had more frequent performance conversations with their managers.”

Is It Time to Retire HCM?

Perhaps the phrase “human capital management” misses the point entirely. After all, employees are people, not capital. Relentless measurement may produce nice bar charts and graphs, but measurement alone will not increase engagement or business outcomes. If we want people to commit to giving their employers their best work, we need to make work more human.

Real productivity comes from having a sense of purpose at work. If you think back to a time when you felt most engaged at work, it likely did not result from fear of being perceived as unproductive, nor did it come from a deep desire to upstage your coworkers. In many cases, the key motivational factors for employees are having a shared sense of purpose within the organization, being empowered to do great work, and feeling confident that their work will be recognized and valued by the people they care about.

The most effective way to cultivate a sense of purpose is to begin with employees themselves. Ask them for their thoughts and opinions on the organization. What would they need to feel more engaged at work? People need to be able to personalize their roles and contributions based on their own unique core values. A one-size-fits-all approach to engagement does not work.

According to Gallup, business units “that score in the top quartile of their organizations for employee engagement nearly double the odds of success … when compared with those in the bottom quartile.” These more engaged business units have 41 percent less absenteeism, 17 percent higher productivity, and up to 60 percent less turnover, not to mention significantly higher customer satisfaction ratings and a 20 percent increase in sales.

Relating to employees as human beings is the only way to cultivate true employee engagement and drive performance. Rather than focusing on HCM 3.0, it’s time to embrace a new model of human-centered organizational advancement, one that enables employees to achieve highly personalized goals. Under this new model, successful managers will employ radically human technology that supports people-to-people connections, elevates the voices of employees, and enables insight-directed action at both the individual and organizational levels.

A version of this article originally appeared on the Waggl blog.

Kate Benediktsson is CMO of Waggl, the most human way for organizations to crowdsource feedback.



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