Understanding the importance of SAP HCM(Human Capital Management)

All ERP software supports every business process with its distinct modules helping to gain better visibility of analytics and in turn easing the entire cycle of operations of each module’s distinct process. SAP is one such player in the ERP world with 40+ years of expertise in providing unique business solutions drafted for your business’s needs. 

The core business modules offered by the SAP ERP software are:  

  • Human Capital Management (SAP HCM) 
  • Production Planning (SAP PP) 
  • Material Management (SAP MM) 
  • Financial Supply Chain Management (SAP FSCM) 
  • Sales and Distribution (SAP SD) 
  • Project System (SAP PS) 
  • Financial Accounting and Controlling (SAP FICO) 
  • Plant Maintenance (SAP PM) 
  • Quality Management (SAP QM)  

This article focuses on elaborating on the core functionalities of the SAP HCM (Human Capital Management) module. Let’s dive in to understand Human Capital Management. 

What is SAP Human Capital Management? 

SAP HCM (SAP Human Capital Management) is one of the vital SAP Modules bestowed with the essential functionalities for creating an efficient management structure in businesses.  It includes multiple functions for managing talent, paying employees, managing applicants, and training talent as the SAP HR replacement.  

SAP HCM integrates multi-level application and approval processes with personnel management. The software is deeply integrated with the organizational structure in order to embed automation in existing hierarchical activities. By linking various submodules of the HCM module, your organization can adapt to deliver unique business-specific situations.  

Below, we’d like to take a closer look at the working of SAP HCM. 

Submodules of SAP HCM 

The scope of the encyclopedia would be too large to describe every element of the HR solution that efficiently improvises the traditional HR workflow. Hence we’ll focus on the most crucial modules, which are subordinate to all missing modules and their supplementary functions: 

  1. Personnel Administration (PA)  
  2. Personnel Time Management (PT) 
  3. Payroll Accounting (PY) 
  4. Organizational Management (OM) 
  5. Personnel development (talent management) 
  6. Training and Event Management (PE) 
  7. Recruitment (PB) 
Personnel Administration (PA)  

Personnel Administration is the nexus of all human capital management threads. The personnel master record stores all the updated personnel data. This “digital personnel file” replaces traditional paper-based methods and ensures that all staff data is constantly updated. It also holds information such as organizational unit (department), pay scale, and pay scale group, in addition to typical employee master data such as personnel number, name, and address.  

Each of the above data is assigned a validity period, which generates a timeline to ensure transparent and traceable changes. “Personnel Cost Planning and Simulation (PA-CP)” is a significant and thus worth mentioning sub-module of Personnel Administration that enables seamless and systematic personnel management. 

Personnel Time Management (PT) 

Almost all sectors now need employee time tracking. In practice, this is accomplished by either employee manually documenting their working hours or by using time-recording terminals. Furthermore, many businesses employ time administrators who make manual updates or revisions. 

Time recording using terminals or analogous technology is recommended to achieve the highest level of automation possible. The time postings are transferred to the SAP system via interfaces, where they serve as the foundation for following procedures such as payroll accounting. 

Browser-based time recording in self-service is possible outside of the business premises. SAP provides this option as well. Furthermore, SAP HCM enables traditional operations in staff time management, such as requests for flex days, supplements, and corrections. 

Payroll Accounting (PY) 

Payroll accounting is the third most significant aspect of personnel administration. SAP HCM contains all important information like pay groups, working hours, different absence times, flexible salary components, and special payments that are streamlined to enhance Payroll Accounting.  

With regular updates and constant business innovations, Payroll accounting always adheres to regulatory standards. We can also perform simulation runs to provide additional security and fix mistakes ahead of time. SAP HCM PY also accommodates several payroll periods, which lies extremely advantageous for MNCs. 

Organizational Management (OM) 

Organizational Management is used in the SAP HCM environment to map the complete enterprise structure with its organizational units. The program also provides process organization analysis and personnel analyses for personnel planning.  

SAP HCM OM can be used to efficiently plan imminent organizational changes. Finally, this module serves as the foundation for career guidance and applicant management. 

Personnel development (Talent Management) 

In SAP HCM, the primary goal of talent management is to assess vacant and available positions with existing human resources. This is done in accordance with predetermined criteria such as qualifications and personal interests. On the other hand, these functionalities enable employees’ specific career and development goals, as well as the accompanying target agreements mapped in the system. 

Training and Event Management (PE)  

Personnel Development is intertwined with Training and Event Management in SAP HCM. Since, it aids in the planning, execution, and evaluation of activities such as training and education at the same stage.  

As a result, the system can store a whole event catalog including lectures, rooms, and papers. Existing events can be utilized as templates and recurring events can be scheduled. Finally, SAP HCM PE allows cost center assignment and billing.  

It is beneficial to use a function that allows you to directly transfer qualifications to HR master data and automatically retrieve each personnel’s training record, isn’t it? 

Recruitment (PB) 

The HCM component Recruitment assists businesses in managing vacancies. With PB, you can also move job requirements and job descriptions to online platforms. Many functions, such as scheduling job interviews or application deadlines, can be developed automatically and tracked. The entire employment procedure can be customized. 

Candidates have access to separate master data administration. As a result, it is not only possible to create a pool of applicants but also easily transfer the application master data to the newly formed HR master data when hired. 

Future of SAP HCM: SuccessFactors 

SAP HCM is no longer available in the new SAP S/4HANA software release. Companies that previously used HCM coupled with other modules, on the other hand, can still move to SAP S/4HANA. This is made feasible through Compatibility Packs, which also make standard SAP S/4HANA functions available. It is crucial to note, however, that all Compatibility Packs can only be utilized until the end of 2025. 

An alternative has been announced for businesses that are unable or unwilling to employ the cloud-based SuccessFactors. It carries the moniker “SAP HCM for S/4 HANA” and will be available from 2023. Unlike ERP 6.0, this system will not be connected with SAP S/4HANA. It must be executed on a separate server, known as a sidecar.  

In terms of functional scope, the solution will be very similar to today’s SAP HCM. This compromise alternative is also projected to receive little support. According to current estimates, it will end around 2030. If nothing changes in this plan, there is no way to avoid implementing SAP SuccessFactors in the long run. 

To know more about SAP SuccessFactors, do check out our blogs on SAP SuccessFactors. 

Conclusion

Personnel management now faces numerous obstacles. The shortage of skilled labor is one of the most important issues of our time. Not every organization is successful in efficiently filling open positions with qualified individuals. Furthermore, payroll accounting and administration personnel continue to spend far too much time on basic duties. Reporting must also be optimized in many places, which implies that personnel strategies are not always dependent on factual information.  

All of these difficulties can be handled with SAP HCM, specifically with the SuccessFactors solution. Through social and mobile ERP, SAP’s HR technologies enable the digitalization and automation of HR activities, intelligent recruiting and talent management, and increased collaboration. Flexible reports and projections can also be generated under the “Analytics” flag, which can considerably optimize strategic human resource choices.  

“Last but not least, the more you collaborate and understand your employees the more opportunities await your growth!

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