This guest commentary appears as part of our OpEx Awards 2020 coverage.
As private equity portfolio companies reassess their strategies in today’s shifting landscape, they would be wise to do the same with their human capital strategies, especially while trimming budgets. Short-term gains from a cut in the wrong place could ultimately put them behind the competition.
Despite a growing awareness of all things human capital, too few private equity leaders have fully internalised that human capital initiatives only drive significant returns when they flow from an integrated human capital strategy, designed to drive big-picture financial objectives. And like all strategies, those focused on human capital must evolve as business environments evolve.
To illustrate, the pandemic has upended myriad companies, creating swift and significant changes to the profitability of respective business units or areas. By now, most companies have sought to pivot and lean heavily on the aspects of their business that they believe will get them through the covid era.
But have their leaders deeply considered the people driving these parts of their business? Do they understand which positions will create the most value in this new environment? Have they determined whether the crisis has changed the company’s “fulcrum roles”, meaning those outside senior leadership circles that have an outsized impact on the company? What are they doing to ensure these people are protected, engaged and empowered to thrive amid the impact of covid-19 on both their professional and personal lives?
Only by devoting requisite time, energy and resources to answering such questions can companies devise a comprehensive human capital strategy that can support its larger goals in the midst of covid-19. And only then can they be sure cuts will not lead to long-term pain for their organisations.
Without understanding companies’ evolving human dynamics, it is all too easy for budgetary adjustments to undermine the very teams best poised to drive growth. How do you cut staff without risking eliminating key support roles? How do you prioritise engagement initiatives without knowing who is most important to engage?
Because the everyday demands on portfolio company management can make it difficult to achieve and maintain this holistic perspective, it often falls to operating partners to question how reworked budgets will impact organisations’ most crucial people, and – big-picture – whether companies have reworked their human capital strategies to guide further decision-making in the new normal. This can rein in short-term thinking that can hinder future growth.
What’s more, it can help unlock organisations’ growth potential, even amid today’s serious economic downturn.
Every crisis presents an opportunity for companies to become smarter and savvier. Though unprecedented, today’s crisis is no exception. But it requires deep thinking about the people who are best positioned to help the company survive and thrive. Together, operating partners and portfolio company management must look to harness their full power and potential.
Matt Brubaker is CEO of FMG Leading and an expert on organisational assessment and change. A frequent advisor to private equity firms, he serves as an operating partner at Windrose Health Investors and is a board member at JM Search