Building the workforce for the future – the investment opportunity

How firms manage their human capital is undergoing a period of unprecedented change.

Demographic changes, flexible working trends and regulation are just some of the forces at work that are driving businesses globally to think more creatively about the management of human capital. For many firms a flexible and agile workforce has become essential, and managing, training, retaining and rewarding that workforce is a fundamental driver of their success as a business. Employees are most businesses single largest expense, as well as their biggest asset.

Developments in this market are being expedited by the rapid adoption of technology. The increasing demand for cloud-based, mobile HR and talent management solutions is creating a positive environment for innovative businesses. As a growth investor, we are excited by the opportunity that this presents.

Regulatory drivers

Employment regulation in the UK is complex and regularly updated, requiring evolving products and services to effectively manage risk. As well as complying with developments such as the living wage and pensions auto-enrolment, many businesses are also needing to adapt to a growing gig economy and a flexible workforce. This is creating a complex regulatory landscape which can be difficult for small and mid-sized businesses to navigate. Furthermore, businesses which are expanding internationally will be faced by added complexities of different regulatory regimes overseas.

ECI’s former portfolio business Citation helps SME customers to address this issue, providing employment law, as well as health and safety and ISO certification solutions into SMEs.

Citation logo

The retention problem

Staff retention and satisfaction is proving to be an ever more important and difficult challenge for businesses. The increasing prevalence of ‘job hopping’ poses a serious challenge for UK business and companies of all sizes are having to come up with new ways to retain and motivate their staff – 35% of the UK workforce is made up of millennials who typically remain in jobs for a maximum of 3 years.

The 2017 ECI Growth Survey found that UK growth businesses are working to improve company culture in a bid to solve this issue with 90% stating that a strong culture improves staff retention. Our experience of investing over four decades is that there is a strong correlation between the strength of a business’ culture and its success. A large number of respondents to our Growth Survey stated that they were considering implementing reward and benefit schemes to improve culture and increase engagement within the workplace.

ECI invested in UK based car benefits provider Tusker in 2015 which has seen significant growth driven by the increasing emphasis placed on employee benefits by organisations of all sizes.

Tusker logo

The rapid adoption of technology

Further integration of technology into HR is inevitable. Cloud-based software which can easily be deployed and scaled is required by many businesses in a new world of work, where employees expect to be more connected and want services to be available 24/7. As a consequence, businesses like ECI’s portfolio company Edenhouse are seeing increasing demand for cloud-based HR products like SAP Successfactors.

The challenge of flexible and remote working is one that many businesses are still learning how to effectively manage – innovative technology businesses across the HCM sector providing software in areas such as rostering, collaboration, and workforce and performance management are well placed to benefit from this market trend.

Subscription pricing means that such technology is accessible without significant day one capital spend.

ECI’s investment in hospitality workforce management provider Fourth is an example of how technology can become integral to the management of staff.

Fourth logo

The exciting opportunity in human capital management

It’s clear that UK businesses are experiencing a revolution in the way they manage employees. This is good news for businesses in the field of human capital management software and services.

Over four decades ECI has supported the growth of technology and technology enabled services businesses operating in growing markets, and we are actively looking for more businesses to partner with in the HCM market.

About the author

Stephen Roberts

"I am a Partner in our Investment Team. My job is to lead investments into growth businesses and subsequently work with them throughout our investment. It means I get to meet with exciting businesses and inspirational teams pretty much every day, which is a real privilege."

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