The Need for a People-Centric Approach to Business
March 8, 2022
By: Delaney Walker
Building and maintaining the right workforce has always been essential for successful companies, but this process has become increasingly difficult in the last two years. A tight labor market has led to surging competition for talent, and employee expectations have shifted dramatically. These factors give applicants more leverage than ever in the hiring process, which is forcing companies to rethink their HR strategies.
Historically, most companies have approached human capital reactively: hiring when a spot is empty, mainly focusing on benefits and compliance, and so on. But with the emergence of new workforce challenges, they have had to start thinking proactively – from focusing on team compatibility and culture to appointing a chief HR officer (CHRO) who understands the company’s growth trajectory and can fuse that with the associated human capital needs.
We’ve seen this first-hand as a company that provides solutions in due diligence and value creation across industries and functions for the private equity industry, their portfolio companies, and leading independent companies. Proactive HR strategies are being prioritized like never before (in the last 30 days, HR activities made up 42.9% of all activities in the BluWave Activity Index, an increase from 39.4% last year), signaling a shift in HR operations from a “check the box” approach to one that is people-centric.
The Increased Prominence of HR Diligence in PE Processes
As PE firms are forced to be more proactive in the way they think about their portfolio companies’ HR strategies, many are beginning to bring more human capital-related activities into diligence. In 2021, HR activities made up 24% of all private equity diligence activities, up from 17% in 2019 according to the BluWave Activity Index.
Within PE firms’ human capital diligence activities, executive assessments are one of the most used tactics. During a time when it is increasingly hard to get the right talent in place, but also increasingly important to have strong company leaders that can build a positive company culture, executive assessments are allowing PE firms to proactively assess the fit of executives as individuals, as well as their compatibility as a team. By conducting these assessments in the diligence process, firms are able to get a head start on planning any changes that need to be made in order to get an A+ team in place – whether that be bringing in new talent or implementing new executive coaching initiatives. In a tight labor market, PE firms are discovering that the extra effort upfront to begin planning for human capital changes makes a world of difference in quickly driving sustainable success.
The Prioritization of Chief Human Resource Officers in Value Creation
Within value creation, as companies are placing an emphasis on proactive human capital initiatives, the CHRO’s value as a strategic resource has become more critical than ever. Chief Human Resource Officers are responsible for developing and executing human resource strategy for an organization, specifically in the areas of talent management and succession planning, as stated on SHRM.org. By prioritizing this role, organizations are hiring someone that can proactively create a true HR strategy, manage employee satisfaction, and more, all with the ultimate goal of increasing employee attraction & retention.
Matthew Garff, Managing Director at Sun Capital Partners, spoke to us about their strategy to have each of their portfolio companies hire a Chief HR Officer. He says that implementing someone whose role is to marry the strategic thinking of the business with decision-making around human capital has been, “… a game-changer for our companies and enabled us to swiftly drive change and make money for the shareholders.”
Why a People-Centric Approach Improves Employee Attraction & Retention
Ultimately, businesses across the board are discovering creative ways to make their companies more people-centric through implementing and prioritizing proactive HR strategies. From utilizing executive assessments to understand how their management team can change and improve through personnel changes or targeted training, to ensuring they have a Chief Human Resource Officer in place to own and plan for the people side of the business, companies of any shape and size can use these tactics to ensure they are being proactive in their thoughts toward the human capital side of their business.
And when it comes down to it, these tactics are implementing a strategy that prioritizes people, which creates a positive culture. According to a 2021 article, 1 in 5 workers say that declining company culture is the main reason they are looking for a new job, proving that from its roots, the people-centric approach is helping businesses improve their employee attraction & retention rates.
If your business needs help implementing a people-centric approach, be it through recruiting a CHRO, placing an interim CHRO, conducting HR diligence, or anything else, we are here to help. Give us a shout or use the start a project button above – our team will be happy to promptly help you drive success with ease.