Payroll Lessons from Superstar Companies
Jun 6, 2019 | Topic: Strategy
In the past few years, leading economists and business analysts have increasingly focused on the rise of superstar firms as a newer phenomenon shaping our global economy. Attaining practical insights from the analysis, however, has been a challenge, in large part because the definition of a 'superstar' has varied widely. That changed last year, when the McKinsey Global Institute (MGI) released its foundational research paper on the dynamics of superstars and the superstar effect.
As opposed to measuring market share, annual revenue, or productivity growth, McKinsey defines superstars as companies with the highest economic profit, measured by multiplying a firm’s invested capital by its return above the cost of that capital. The research analysis of nearly 6,000 global firms revealed key insights that can help businesses of all sizes and across all regions and sectors to better understand the global forces that define economy, consumerism, and what’s possible for business in the digital age.
While the majority of follow-on analysis focuses on what the C-suite should know, we’re taking a closer look at how key characteristics of superstar companies can help inform decision-making in traditionally back-office aspects of business — such as payroll. While leadership digests key strategy and investment takeaways, here’s what global payroll and HR teams can keep in mind when evaluating their everyday tasks and processes.
“Superstars exhibit higher levels of digitization”
It’s all but impossible today to be in any kind of business and not rely on digital tools. Yet, the digitization of key processes continues to be a lagging journey when it comes to many aspects of enterprise technology. Although ERPs, CRMs, and HCMs are now considered standard, many organizations still balk at the idea of centralizing their payroll or treasury services in the cloud.
However, it’s precisely this widespread adoption of digital platforms that helps superstars outshine the competition. The top firms not only implement digital platforms for essential functions, they integrate those systems as much as possible. This enables superstars to expand data accuracy and protection, as well as maintain greater control over fundamental processes and information.
Natively digital platforms that use cloud-based data records also support the scalability and agility required for companies to be truly competitive today. The McKinsey research highlights this digitization as a key differentiator between superstars and the majority of competing firms, noting adoption of emerging digital technology as a means of widening that divide. “Advances in artificial intelligence and automation can further increase the gap between those on the digital frontier and everyone else — and by doing so, increase the gap between intangible-driven superstar companies and others.”
“Superstars show greater innovation intensity”
In line with deeper digitization is the finding that superstar firms demonstrate a greater focus on innovation than other companies. This propensity plays out both in their pursuit of process optimization and in their understanding of the correlation between process improvement and profit growth. Superstars invest in staying ahead, a large part of which depends on their ability and willingness to adapt.
Honing that resilience means incorporating new technology and capabilities, both for industry-specific and general business purposes. In global payroll, this means transitioning away from traditional aggregator providers and fragmented payroll systems.
When it comes to providing professional services, direct accessibility and control of the relevant data is the key to innovating use of that information. The outmoded approach of using multiple local providers and aggregating payroll results into a single, streamlined dashboard for customers simply doesn’t support superstars’ need and appetite for innovation. A unified platform and standardized, end-to-end database, on the other hand, ensures direct visibility and greater control over both processes and outcomes.
“Superstars have more intangible assets”
Depending on a superstar company’s core business, ‘intangible assets’ can be many things, including patents, software, talent, brand, and much more. On the whole, superstars invest more in R&D than the majority of companies, accounting for 70% of total R&D spending of the 5,750 largest companies in the McKinsey analysis. They attract and retain more highly skilled employees. They understand the enduring value of customer connection.
Prior to the twenty-first century, a firm’s main assets were considered those physical items you could count and quantify, like equipment or buildings. Today, as detailed in Capitalism Without Capital: The Rise of the Intangible Economy, “the ability to deploy assets that one can neither see nor touch is increasingly the main source of long-term success.”
Chief among intangible capital is data. And the largest source of company-unique data is typically payroll. As business interest in and use of big data and analytics has matured, multinational enterprises have wizened to the strategic, economic value of payroll and workforce data.
For the majority of organizations today, payroll represents the largest, most complete, and most regularly updated set of company-specific data available. The application of payroll data can extend well beyond paying employees, filing taxes, and making statutory payments. High-quality, comprehensive payroll data can inform strategic decisions around enterprise expansion, workforce planning, and even employee retention.
Regardless of size, industry, or location, companies looking to compete in the continuously evolving global economy can find plenty to take away from the McKinsey research. Applied to your global payroll organization, these insights can help inform future choices around payroll solutions, as well as systems for human resources, finance, and other functions. Even if your organization can’t compete with superstars’ economic profit, you can shine just as brightly when it comes to your global payroll operations.