17th April 2019

GUEST BLOG: Technology in human capital: The top four reasons private equity (PE) firms are looking at managing their portfolio company workforces digitally

Most methods for enhancing business value, beyond pure financial engineering, involve optimising people management in some way.  For example; restructuring teams, bringing in new talent, refreshing training programs or modifying incentive structures. An organisation’s talent is increasingly its greatest source of value creation, market differentiation and innovation.
As a result, investors are putting greater emphasis on maximising the return on their investments in human capital and using technology to help them do that.
Human Capital Management (HCM) technologies have evolved significantly in the last decade.  Most now feature artificial intelligence, machine learning and augmented reality capabilities and are delivered via an intuitive mobile interface.  Venture capital investment in HR tech firms globally in 2018 was nearly triple what was invested in 2017, with nearly $1.2B USD invested in Q3 last year alone, spurring on these new technologies and highlighting the increasing recognition of the importance of talent.
As Bain highlighted in its 2019 Global Private Equity Report, PE firms are proactively looking at how to cope with digital disruption, increase organisational agility and mitigate global political and economic risks.  While PE firms have not traditionally seen the HR function as a lever for value creation and risk mitigation, there’s a growing recognition that these new technologies are rewriting the script and opening new possibilities.  
Meanwhile traditional barriers to technology investment have fallen, for example; SaaS models with subscription licensing, rapid implementations of weeks or months instead of years, and financing models that minimise capital costs and shorten payback periods.
We see several reasons for why PE firms are using technology to drive better workforce outcomes:
1. To drive operational efficiencies
Staff rostering and scheduling solutions drive out cost by enabling employees to swap shifts, by highlighting workforce risks to managers and by employing intelligent, predictive technologies with advanced forecasting and optimisation.
According to PwC, organisations that transition from manual processes and disconnected legacy systems to modern, integrated digital workforce management technologies typically see 15-25% cost savings in HR and IT spend.
For example, Crocs, the footwear company backed by The Blackstone Group since 2014, was able to move from 17 different systems into one centralized HR solution with standardised workflows for hiring, recruiting and other workforce management processes.
In addition to HR and IT savings, providing self-service capabilities to employees, managers and executives via mobile devices speeds the flow of information, increases organisational agility and enables data-driven decision making based on real-time data from the board level down.
2. To scale the business
After Blackstone’s investment, Crocs closed underperforming stores and exited unprofitable markets. Its growth trajectory had stretched internal operations and systems. To continue global expansion Crocs needed a scalable solution to drive standard processes while supporting multi-currency, multi-language and local country business requirements.
Crocs’ new HCM solution catered to these complex requirements. It enabled workforce management processes to be stood up quickly and within local regulations and standards, thereby avoiding the need for complex IT and HR projects in each new market and eliminating one of the bottlenecks to sustainable growth.
3. To mitigate workforce risks
Despite the workforce representing 40-70% of a company’s expenditure, organisations often struggle to produce real-time, accurate workforce cost and productivity data.  Even a simple headcount report can take days and still be inaccurate due to discrepancies between various HR, payroll and IT systems.  Contingent staff, visa permits and remote workers complicate matters further.
Not knowing how many people the organisation has, where they are and what they are doing increases compliance risks and potential regulatory breaches.  Between 2012 and 2017 we saw an increase of 22% in the number of labour laws and regulatory changes across 81 countries – so the risks are growing.
Integrated HCM technologies mitigate this risk by housing all workforce data in one central repository, ensuring workforce visibility with an audit trail of activities (for example employee grievances, performance warnings, code of conduct training completions and safety breaches).  And today’s cloud-based solutions are updated regularly so that changes in employment or tax laws are automatically catered for with minimal intervention.
Accudyne Industries (a US-based organisation with private equity ownership since 2012) requires employees to complete mandatory safety training every year but was not able to ensure full compliance.  With a mobile-enabled learning solution as part of their centralised HCM platform, employees were able to achieve 100% compliance, significantly reducing risk exposure.
4. To attract, retain and align the right talent
Part of the changes instituted at Crocs with its new HCM system was a revised performance management process that eliminated bureaucracy and instituted meaningful conversations between managers and employees focusing on performance improvement.  Combined with better remuneration data and visibility of top talent, managers are now making better informed pay decisions, including how to rate and calibrate the performance of employees.
Before investing in an integrated HCM solution, Affinity Education Group (backed by Anchorage Capital Partners) was using manual spreadsheets to manage staff performance.  As one of the largest private childcare providers in Australia, executives recognised the need to implement more sophisticated processes to provide meaningful feedback to employees while tracking and monitoring operational outcomes and staff development across the dispersed network of childcare centres.
In SAP’s experience the benefits of an integrated HCM solution are significant. Organisations typically see proven benefits of reduced staff attrition, lower costs, streamlined processes, increased collaboration, enhanced employee engagement and an overall lift in organisational productivity of 5%+. 

Additionally, modern HCM technology helps deliver on commitments to diversity, inclusion, and gender equality. For example, SAP SuccessFactors offers a rules engine that can be leveraged to generate performance and promotion bias alerts during the calibration process, to detect employees who may be overlooked for a promotion, or those who have had a performance rating reduction after returning from a leave of absence, such as maternity leave. Furthermore, the job analyzer tool uses machine learning to deliver a set of powerful algorithms, such as a gender-based language checker, that identifies and removes unconscious bias in job descriptions. 
If you’d like to know more about SAP’s work in this areaFor additional information, please contact Dima Ceban, SAP Australia Pty Ltd (dima.ceban@sap.com) and Russell Porter, SAP SuccessFactors (Russell.porter@sap.com)