First, as with all companies, PE companies need to get their own people management right.
More than in most industries, people are the major asset. Whether in building funds, sourcing and completing deals or managing the portfolio of investments, success is uniquely dependent on the quality and effectiveness of the management team. As the Private Equity market evolves, people management needs to evolve as well.
Maximum financial returns are best ensured by developing and implementing a people strategy that is designed to deliver the current investment strategy. Recruitment, executive compensation, organisation design and talent development will all be key components. PB PE can help identify the key opportunities to improve returns and where appropriate design and run programmes to deliver the benefits.
Second, PE companies should also have a people management strategy for the management of their portfolio of investments.
The nature of this will depend on where the PE business strategy sits on the active-passive investment spectrum, but should always take into account the potential to use the experience and expertise developed through multiple investments to help the performance of individual investments. There is a wide variation in current practice in the co-ordination of the management of portfolio companies, including the people issues. Increasingly PE firms are employing dedicated specialists combined with a range of external / part-time advisers.
This second element is a “push” strategy where the PE company effectively “mandates” that certain people management activities will be done in a particular way, because of their importance in delivering success and / or because there is believed to be significant benefit to be derived from sharing best practice. This can be seen in a wide range of involvement including:
- Recruitment – a critically important activity where the development of the consistent use of best practice can deliver major benefits.
- Business activities which are rapidly evolving – such as the use of AI / machine learning and the development of agile working techniques.
- Benchmarking performance by (i) applying activities such as the same employee engagement surveys across the portfolio and (ii) developing a common set of HR metrics which make it easier to identify areas of excellence and concern.
It is also important however that the investment teams who have overall responsibility for the performance of their companies are helped to develop their expertise in monitoring and managing portfolio companies.
People Business PE helps PE companies to define the extent to which they want to seek synergies across their portfolio. Such efforts are increasing as it is accepted that valuable support can be provided to newly acquired portfolio businesses that speeds up their decision making and helps them learn from the experiences of previously acquired businesses. Among many other areas, we work on developing a people management strategy for individual portfolio businesses which maximises the chances of the growth strategy being delivered.
Third, the PE company can recommend resources to individual portfolio companies.
Individual companies may not have well developed HR functions or who simply want to access quality resources who have a proven track record with other portfolio companies. This can cover almost every aspect of HR including recruitment, leadership development, coaching and mentoring, HR policies etc. This third element is a “pull” strategy where the onus is on the portfolio company to ask for help as it sees appropriate.