Strategic HRM and Human Capital Management

A number of writers have argued that strategic HRM and human capital management (HCM) are one and the same thing, and indeed the concept of strategic HRM matches that of the broader definition of HCM quite well as the following definition of the main features of strategic HRM by Dyer and Holder shows5:

Organisational level - because strategies involve decisions about key goals, major policies and the allocation of resources they tend to be formulated at the top.

Focus - strategies are business-driven and focus on organisational effectiveness; thus in this perspective people are viewed primarily as resources to be managed toward the achievement of strategic business goals.

Framework - strategies by their very nature provide unifying frameworks which are at once broad, contingency-based and integrative. They incorporate a full complement of HR goals and activities designed specifically to fit extant environments and to be mutually reinforcing or synergistic.

This argument has been based on the fact that both HRM in its proper sense and HCM rest on the assumption that people are treated as assets rather than costs and both focus on the importance of adopting an integrated and strategic approach to managing people which is the concern of all the stakeholders in an organization not just the people management function.

However, the concept of human capital management complements and strengthens the concept of strategic HRM rather than replaces it1.

It does this by:
drawing attention to the significance of ‘management through measurement’, the aim being to establish a clear line of sight between HR interventions and organizational success
providing guidance on what to measure, how to measure and how to report on the outcomes of measurement underlining the importance of using the measurements to prove that superior people management is delivering superior results and to indicate the direction in which HR strategy needs to go reinforcing attention on the need to base HRM strategies and processes on the requirement to create value through people and thus further the achievement of organizational goals defining the link between between HRM and business strategy
strengthening the HRM belief that people are assets rather than costs emphasising role of HR specialists as business partners.

Hence both HCM and HRM can be regarded as vital components in the process of people management and both form the basis for achieving human capital advantage through a resource-based strategy. An alternative way of looking at the relationship between strategic HRM and human capital is in terms of the conversion of human capital into organisational value. Human capital evaluation is useful in that it provides information about the current and potential capabilities of human capital to inform the development of strategy. Business success will be achieve if the organisation is successful at managing this human capital to achieve this potential and embed it in products and services which have a market value. Strategic HRM could therefore be viewed as the defining framework within which these evaluation, reporting and management process take place and ensure that they are iterative and mutually reinforcing. Human capital therefore informs and in turn is shaped by strategic HRM but it does not replace it.