Private Equity firms purchase Portfolio Companies with the intent to add value and maximize their growth potential, but it’s no surprise that achieving successful growth is complex – oftentimes accompanied with unforeseen challenges.
Portfolio companies today are under enormous pressure to achieve hyper- growth, sustain constant innovation and successfully execute their business strategies – all while maintaining existing operational efficiencies and costs. But once you acquire a new portfolio company, where does your growth plan start? What needs to be addressed immediately? What are your long term goals? How much can you fund? What has been working?
In a series of blog posts, we will address the four challenge areas that have the most impact on a portfolio company’s success and the best approaches to address them head on. In the final installment of our blog series, we will explore the necessity of your operations.
- Strategic Plan
Challenge: Does your portfolio company's processes and infrastructure support the execution of the strategic growth plan?
When developing a roadmap, the importance of your portfolio company’s processes and technology platforms often go unaddressed. Initiating new growth strategies triggers significant change in the People, Process and Technology of your organization and affects all departments and employees alike.
Any operational weaknesses that your portfolio company might have will be exposed during this intensive period. Investments and initiatives in addressing these components will need to be woven into the strategic roadmap.
There are 2 critical elements to focus on when improving operations for new initiatives:
- Key Performance Indicators
When it comes to performance management, the old adage is true: you get what you measure.
Though it sounds simple enough, when it comes to performance management, most organizations struggle with defining which metrics to measure, how to measure them and why to measure them in the first place.
Simply put, the right performance metrics to measure and monitor are those that directly align with your organizational strategies. To determine the right measures of performance, those intimately involved in management and operations need to answer these questions: “what are our strategic business goals,” and “what are our specific measures of success?” Though there isn’t always a straightforward answer and oftentimes a workshop is needed to build a consensus, the end result is a consistent, meaningful view of performance and alignment focused around your organization’s goals.
Once you have defined the metrics to help monitor performance, the next step is defining which of those metrics are KPIs, or Key Performance Indicators. KPIs are a small subset of metrics that are determined to have the greatest impact on your business as a whole, or a specific business goal. Different functional areas of the business may have different KPIs. As an example, while revenue may be a KPI at the enterprise level, the marketing department may monitor web traffic scores or social sentiment as departmental KPIs.
Here are a few other points to keep in mind when it comes to performance management and monitoring:
- Remember that all KPIs are metrics, but not all metrics are KPIs. KPIs are those metrics that have the largest and clearest impact on company performance or alignment to a specific goal. There should be no more than a total of 10-20 KPIs for your business.
- Data Visualization tools, such as rich dashboards and scorecards are invaluable to performance monitoring. Visually appealing dashboards and scorecards use data visualization techniques to quickly convey simple messages about performance to the business user, providing the at-a-glance feedback (good, bad, average), which executives crave.
- Scorecards are essential visual tools that lend immediate focus to the progression towards organizational goals through the use of defined KPIs. Scorecards are typically used at the enterprise level, but may be broken down by division, function, etc. to better help executives monitor performance in their areas.
- Balanced scorecards combine both financial and non-financial metrics to provide a holistic viewpoint of performance. Typically, business processes, employee growth and customer satisfaction are combined with financials to provide a complete perspective on the business or functional area.
- Break Down Departmental Silos
Cross-departmental change and collaboration is typically very challenging for many organizations, especially during times of significant transition. “Silo” mentality is a common structural issue for organizations that is detrimental to their future success. It’s a mentality that focuses on individual (single person or one department) gains rather than the organization as a whole, and is a large contributor to corporate inefficiency. Silos often stem from the goals established by the leaders of the company and are difficult to breakdown. If a company’s performance metrics aren’t aligned with the new strategic initiatives, employee loyalty can shift from the firm’s well-being to their own, individual success rather quickly. For example, if a P&L manager’s bonus is not aligned with the new strategic initiatives, the manager's loyalty shifts from the firm to their P&L’s individual goals.
Bridging the gap between departmental silos is a necessary step to strengthening a company’s operations so it can further the new initiatives.
When portfolio companies are acquired, private equity firms have a clear intent to add value and maximize growth potential. To enhance the performance of portfolio companies, consider addressing the four challenges addressed in our Achieving Hyper-Growth blog series: Leadership, Innovation, Strategic Roadmap and Operations (HYPERLINK THESE).
Doing so will add focus your organization and lead to powerful outcomes including improved business strategies, streamlined processes and companywide innovation.
Messina Group is a Chicago based consulting firm that specializes in Private Equity and Portfolio Company Advisory. Interested in learning more about our services?