Human Capital vs Human Resource: What’s the Difference?

Do you know the difference between human capital vs human resource? Human capital and human resources are two concepts commonly used in the context of human resource management, yet they have different focuses and approaches.

Human capital and human resources are two very similar concepts as both are related to the skills, talents, and abilities possessed by humans. These terms are often considered interchangeable, but there are distinctions between them.

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In the following article, we will explain the differences between human capital vs human resources. Please read the complete explanation below.

The Difference Between Human Capital vs Human Resource

1. Differences in terms of definition

Human capital comprises the skills, experience, education, knowledge, and competencies possessed by individuals and contributed to a company. In other words, human capital is the value an individual brings to a company.

Human capital is a crucial component in production. This is because companies utilizing employees with appropriate education, experience, skills, and training can enhance efficiency, productivity, and profitability.

On the other hand, human resources refers more to the management function focusing on the administration and development of the workforce within a company. This involves recruitment, selection, training, development, performance evaluation, and general workforce-related management.

2. Differences in their main focus

The differences between human capital vs human resources can also be observed in their primary focus. Human capital centers on the development and improvement of workforce skills, knowledge, and experience. Consequently, the workforce can enhance productivity and make positive contributions to the company’s growth.

Meanwhile, human resources is more focused on the management of human resources. For example, this includes managing policies, procedures, recruitment, training, and other administrative aspects related to employees.

3. Differences in perspectives on employees

Human capital vs human resources also have different perspectives on employees. Human capital sees employees as assets that can enhance their economic value through investment in skill and knowledge development. Consequently, employees can improve productivity and the company’s profitability.

In contrast, within the context of human resources, human resources view employees as resources that need to be managed efficiently according to the company’s needs. Effective management will contribute to the achievement of the company’s goals.

4. Differences in job scope

Another difference between human capital and human resources lies in the scope of their responsibilities. As mentioned earlier, human capital sees employees as valuable assets that can benefit the company. Therefore, the job scope of the human capital team focuses on developing and enhancing the skills, capabilities, and productivity of employees, enabling them to make a greater contribution to the company.

Responsibilities of the human capital team include:

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  • Identifying employees’ potential to develop appropriate career development plans.
  • Creating a work environment that supports employees in their growth and maximum contribution.
  • Managing continuous training programs to enhance the skills and knowledge of employees.
  • Developing key skills needed to achieve the company’s goals, and more.

On the other hand, the human resource (HR) team focuses on managing various aspects related to employees, including recruitment, performance management, legal compliance, and personnel administration. HR is oriented towards processes and practices related to managing employees from the beginning to the end of the employment cycle.

Responsibilities of the human resource team include:

  • Recruiting and selecting qualified candidates to fill positions needed by the company.
  • Training and developing employees to enhance their skills and knowledge.
  • Performance management to assess employee performance and provide constructive feedback.
  • Conflict management to resolve conflicts that arise among employees.
  • Welfare management to ensure that employees have good physical and mental well-being.
  • Human resource planning and development to ensure that the company has competent employees ready to face future challenges, and more.

Which is Better – Human Capital Management or Human Resource Management?

Human Resource Management (HRM) and Human Capital Management (HCM) are two different approaches to employee management. HRM focuses on administrative and operational aspects, while HCM centers around employee development. Therefore, it cannot be said that one approach is better than the other, as both have their respective advantages.

Advantages of HRM

  • Efficiency and effectiveness in employee management: HRM concentrates on structured processes and practices to manage employees efficiently and effectively. This includes planned recruitment systems, measurable performance assessments, and organized personnel administration management.
  • Compliance with laws and labor regulations: HRM ensures that the company adheres to all applicable legal requirements and labor regulations. This helps prevent legal issues, protects employee rights, and maintains the company’s reputation.
  • Harmonious and fair work environment: HRM strives to create a harmonious and fair work environment where employees feel valued and respected. This contributes to increased job satisfaction, reduced turnover, and aids in improving employee productivity.

Advantages of HCM

  • Increased productivity and company competitiveness: HCM focuses on the development and enhancement of skills, capabilities, and productivity of employees. This helps the company improve operational efficiency, foster innovation, and achieve a competitive advantage in the market.
  • Attracting and retaining quality employees: HCM assists the company in attracting and retaining high-quality employees by offering career development opportunities and competitive compensation.
  • Enhanced creativity and innovation: HCM promotes a work environment that supports creativity and innovation by providing opportunities for employees to explore new ideas and contribute to the development of new products or services.
  • Employee commitment and motivation: HCM strives to enhance employee commitment and motivation by providing opportunities for continuous learning and development, recognizing achievements, and involving employees in decision-making.
  • Adaptation to market changes: HCM helps the company adapt to rapid market changes by preparing employees for new skills and roles that are required in the evolving landscape.

Overall, HRM and HCM play complementary roles in effective workforce management. HRM ensures that the company complies with regulations and has efficient processes to manage the workforce from recruitment to retirement, while HCM focuses on the development and empowerment of the workforce to achieve the company’s goals.

Despite the differences between human capital and human resources, successful companies leverage the strengths of both approaches and can create a productive, motivated, and adaptive workforce. Therefore, both are equally essential in a company.

The Role of HRIS Applications in Human Capital Management and Human Resource Management

A Human Resource Information System (HRIS) is a system used to manage data and processes related to human resources in a company. HRIS plays a crucial role in Human Capital Management (HCM) and Human Resource Management (HRM) by providing an integrated platform for managing various aspects, such as:

  • Performance management: HRIS applications can be used to track employee performance, provide feedback, and conduct performance assessments.
  • Employee data management: Managing basic information about employees, such as personal data and other administrative information.
  • Attendance management: Tracking employee attendance, leave, permissions, and more to ensure accurate payroll and workforce engagement.
  • Employee self-service: Providing a self-service platform for employees to manage personal information and request leave.
  • Compliance: Ensuring that employees meet the total weekly working hours as per applicable regulations.

By using HRIS in HCM and HRM, your company can automate many administrative tasks, improve efficiency, and provide useful data for decision-making related to human resource management. If you are interested in implementing HRIS applications in your company, you can use Dokodemo-Kerja. Please contact us for further explanation.

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