Hybrid working – the new value creation lever for PE?

Our extended experiment with homeworking has gone way beyond the month or so we all anticipated in the spring of 2020. While it’s thrown up challenges for everyone, it has also opened our eyes to a new way of working.

There have long been arguments that requiring knowledge-based workers to adopt what are effectively manufacturing business hours is impractical, and the pandemic has largely proved this to be true. For Private Equity, this shifting dynamic has driven heightened interest in business services and presented opportunities to capitalise upon.

The sector’s requirement to adjust operating models, leading to reduced costs – in what has been a sector crippled by low margins over the last 10 years – shows that the pandemic has been a game-changer. In a recent City AM article, my colleague Rob Hornby recently highlighted the inevitable complexity and confusion that will result as businesses figure out working patterns post-pandemic. As Rob highlights, applying a hybrid or completely remote working model is tricky and, for many businesses, unprecedented.

As a value creation lever, hybrid or remote work have numerous benefits. The obvious ability to consolidate office space and reduce rental costs, utilities bills and other associated expenses could be significant. If we look at the other major cost in business services – people – then they are other opportunities too. Many people are reluctant to lose the flexibility they have gained over the last 16 months. The ability to balance work and domestic responsibilities, focus more on self-care and avoid the commute has dramatically evolved employee expectations. Those employers that can’t meet them may well find themselves losing talent and eroding business value. If done sensibly, there is a chance to develop a truly hybrid approach that is lower in cost and appealing to employees.

For PE, this is a new aspect to value creation planning and, as well as focusing on the hard financial aspects of business operations, it touches upon matters of leadership and management that PE has long recognised as critical components of business prosperity.

So, how can organisations approach this to create sustainable value to the bottom line as well as create more meaningful working environments for their employees?

Office footprint optimisation should now be considered in similar terms to the way in which value creation has historically approached manufacturing footprint optimisation – consolidating footprint and processes around best-in-class facilities and optimising the allocation of capital to drive efficiency and growth. 

This can yield meaningful benefits. Rationalising office footprints around a reduced physical capacity requirement in meaningful flagship sites will continue to offer the flexibility required for the new model. At the same time, this can drive cost and process efficiency by unwinding expensive and inefficient leased site portfolios and/or exiting elements of an owned footprint.

Of course, careful execution is key – you couldn’t simply close manufacturing sites without careful reconfiguration of the network, and PE value creation planning should approach office rationalisation in the same way. Combining floorspace rationalisation with process optimisation and organisational transformation is vital to successfully unlocking this opportunity.

The acceleration to a world of hybrid working has opened another dimension of individual work/life benefits for employees in the face of so many other pandemic-induced individual challenges. PE has been quick to spot a different upside, too, which could exist in harmony with – and further enhance – the working world as we now know it.