In the typical company, the payroll accounts for some 60 per cent of operating costs. Boards see managing that “human capital” as increasingly critical to business success. Yet companies have been relatively slow to apply information technology to human resources, and slower still to human capital management.

“Most companies in the Fortune 1,000 have some sort of HR system, but they don’t necessarily have a human capital management system,” says Folia Grace, vice president for applications marketing at Oracle. “There is a continuum of maturity in this area. Human resources is classically a back office system, but human capital management goes beyond human resources.”

While the classic human resources management system revolves around transactional processes such as administering leave applications or benefits entitlements – and is driven largely by the promise of efficiency gains – human capital management is about helping companies manage the people in their business more effectively.

Emerging areas such as talent management, performance and reward management, employer branding and human resources analytics are all intended to view employees as a resource that needs to be nurtured and developed, and to align HR more closely with the company’s strategic goals.

But achieving this can mean radical changes in the way HR departments and line of business managers operate, as well as changes in the technology that supports them.

Over the last few years, larger companies in particular have made great strides in reducing the administrative overhead of HR. Moves towards shared services centres, employee self-service and even outsourcing for personnel administration have made HR more efficient.

This has been supported by the growing maturity of the HR administration components of the large, ERP-based software suites, allowing companies to automate a greater range of processes without the need to develop custom applications.

But lessening the administrative burden on HR departments does not always translate directly into a greater focus on human capital management. That will only happen where the human resources director is willing to embrace change.

“The human resources director has to be both a strategist and a steward,” says Howard McMinn, partner in the HR practice at Deloitte, the professional services firm. “There is clearly a value to the business in the stewardship role, but CEOs also want the HR director to be a strategist. But not all of them can be.”

Deloitte identifies a first and second wave of developments in human resources. The first wave is heavily centred on the stewardship or “hygiene” role: making sure that personnel administration runs efficiently, and that HR practices comply with corporate, regulatory and legal standards. The second wave involves looking strategically at the role of people within an organisation, and providing the tools for both HR departments and line managers to make the most of that valuable resource.

“We have gone through the first generation of HR automation, which saw a shift from transactions being done by HR advisers to shared services centres or employee self -service,” says Mr McMinn. “What hasn’t happened to the same degree is translating that into greater strategic value for HR.”

In other areas of business, such as finance and procurement, ERP systems have enabled staff to concentrate on higher-level tasks, such as assessing new suppliers, rather than on simple administration.

HR management systems offer similar potential. Exploiting that potential, however, means that the role of HR within the business needs to change. Efficient processes are taken as a given, but technology could also mean smaller, more streamlined HR departments focusing on strategy, planning and compliance, as well as devolving many day-to-day personnel issues to individual line managers.

“When HR was disconnected from the rest of the business it did not matter to many people if processes were not efficient,” says Patrice Barbadette, founder of HCM vendor Jobpartners. “But if you want HR to be aligned with the business you need to make sure that the people who are at the heart of the growth and innovation of your company are well managed.”

For HCM to work at the operational level, it needs HR departments that can act as trusted advisers working in partnership with line managers, providing specialist support and guidance. At the top level, HR directors need to take the company’s overall strategy and to translate that into policies for recruitment, retention, staff development and succession planning.

“A lot of organisations have gone through the process [of HR automation] and are looking at the tools they can give managers to better manage human capital,” says Steve Foster, HR strategy manager at software vendor Northgate.

“That technology is based on the principle of HCM and means measures that go beyond the basic processes. How can we help you, as a manager, do appraisals better or manage performance better? The forward-looking HR director will be very aware of what technology can do, and what its limits are.”

Human capital management technology can, for example, give line of business managers a much more comprehensive overview of the people resources available to the company, how those people are rewarded and how their talents are being, or could be developed.

The latest generation of HCM and HR analytics tools also give managers the invaluable ability to model scenarios based on the business’s actual data. Such tools come into their own when it comes to analysing the HR issues of M&A activity or assessing the impact on the business of the retirement of the baby boom generation.

But limitations include putting critical personnel decisions into the hands of line managers who might not have the knowledge or support to make the right choices, and presenting highly granular HR data out of context.

A manager cannot be expected to know, for example, whether two days’ sickness a month is good or bad without information from the rest of the business, or even from competitors. This makes it critical for HR departments to be involved in such projects throughout, rather than simply handing them over to IT, and to ensure that managers’ HR goals are consistent with the company’s overall approach to human capital management.

“Technology cannot resolve problems, it can only facilitate the process,” cautions Jason Kiely, HCM practice head at IT consultants Morse. “You still have to look at the processes and how efficiently they are working, and then use technology to support that.”

This is likely to mean bringing in specialist applications to handle areas such as talent management and rewards, as well as using a human resources management system or the HR functions in an ERP application for administration. On paper, such moves should allow HR departments, as well as line managers, to devote more of their time to innovation and strategic human capital management.

“The second wave of HR technology has got hold of the processes, made them consistent and put them out to the line managers,” says Deloitte’s Mr McMinn. “The ‘tea and toilets’ stuff has taken place. The new work is around creating time for line managers to carry out proper career development planning or other strategic areas.”