Capability

‘Can you just tell us how other similar organisations in the industry are organised?’ Something that tends to come up in engagements with customers, usually in a coffee corner or even in the bathroom. Especially in a disruptive and highly competitive market environment. One of those the latter, this piece reflects on what private equity (PE hereafter) owned organisations should do/don’t when it comes to creating relevance in their markets. Private equity owned organisations: I’m sure you have heard of it before. Perhaps you have been or are part of one. There are loads of myths around their purpose and objectives. One of which is that it usually is a money hungry business growth machine. Not quite. The nuanced explanation is that PE owned organisations are identified to have a growth potential but are financially constraint or maybe risk averse. There usually is a timeline linked to the investment, and by which point financial and business growth targets are being met. All in all: it’s an organisation like any other, with passionate people delivering value creating work. There are, however, nuance differences for instance when the level of control in the day-to-day operations from the investors is significant. 1. Don’t: mimic other businesses – even when tempted Lift and launch can become a slippery slope when it comes to survival. In the context of a PE owned organisation, the focus tends to be on getting the business to grow ASAP to significantly increase the business value for a potential sale, go for an initial public offering (IPO) , or otherwise. When the focus is on e.g. becoming nimbler and more efficient in the operations, this will not be a distinctive strategic difference. The obsession with operational efficiencies and effectiveness simply means that you will perform slick when it comes to production: i.e. more pace, less mistakes. This can, indeed, deliver serious benefits – but it is easy to replicate. With a limited difference between one over the other, the distinguishable value to the customer fades. Subsequently, where is the growth? Developing a strategic competitive advantage is driven from differentiating in what you do or how you do it. 2. Do: Pick a gravitational pull Trying to be all things to all people will not succeed. Being intentional about what the competitive difference is of the business is, is critical. By the way, this is different from choosing a strategic objective. The competitive difference informs why, what and how you operate. From a classic theoretical framework, researchers Treacy and Wiersema (1993) , differentiated between the three components below. In PE owned org context there usually is a fast turnaround to show results to the PR investor. As a result, highly siloed and no coherent competitive advantage Customer intimacy: customers are everything and products and services are being customised to accommodate the customer. Understanding what the customer needs happens through data analysis in combination with nourishing deep relationships. This value discipline is a result of consistent relationship building effort over time. In this day and age, with more and more critical customers and consumers, there is little to no room for giving the benefit of the doubt. So, the state of the relationship is key to be able to be ‘’let in’’ by the customer on what it wants. It requires behaviour from members of the organisation to enable decision-making that best serve the customer. Think of Walt Disney and Goldman Sachs. Operational excellence: do not mix this up with a very efficient organisation. Why? Efficiency on its own is not a competitive advantage point. Rather, operational excellence is about offering products/services at the most affordable price. Efficient and lean production processes serve in that case as a means to an end. It tends to also have an economies of scale component with a focus of reducing non-value creating work (i.e. waste) as much as possible. Think of McDonalds and IKEA – classic operational excellence examples. Product leadership: outperforming your product or service is really what this one is all about. The ultimate competition is all about the best product on the market - recognised by the target audience customer(s). Think of Lego and Apple – classic product leading examples. 3.Don’t: hire top talent without a clear way of working You got a massive investment and have a bright journey ahead to grow this business into something of magnificent added value. In this early phase, PE owned organisations tend to hire the best-in-class people in their specialist areas. Although there is nothing wrong with that, in fact: it’s understandable from a capability perspective. But just getting those top talent in without setting up a shared understanding of what the way of operating and collaborating is, is going to be a guaranteed waste of talent with a risk of increased attrition. Besides, most organisations don’t grow through high specialism, which is expensive by the way, but mostly through economies of scale. Developing and setting boundaries of work and how the work gets done, will give freedom. 4.Do: water drive markets (daha) It may seem so obvious: focusing on priorities first. But the reality, especially in fast paced environments such as PE owned organisations, is that it can very quickly turn into a siloed bunch. And when not designed deliberately, naturally the org will get a functional default dimension of being organised. This is not necessarily a bad thing; it’s just a default and not to be assumed best traded off option. As a result, the most obvious things won’t seem that obvious, as most will be focused on their own scope and remit. Rapid growth requires focus and consistency. That does not mean that other areas do not get any attention at all. It is a shift in mindset and perspective: seeing the wood for the trees. In conclusion So, what does this all mean with regards to the true relevance in the market for the PE owned organisations? If you want to grow the business, you need to start slow, take the time to do the necessary work, without short cuts. Just having a fancy looking deck with a compelling strategy won’t enable making a competitive difference. Double clicking on what doing the work means is a strategy, operating model and behaviours which are fit for purpose. So, start slow to go fast. Sources IPO is the opportunity to access a wider pool of public investors – prior to that funding is only possible through private investment. Treacy, M. & Wiersema, F. (1993). Customer intimacy and other value disciplines.

Capability

How Private Equity Owned Organisations Can Create True Relevance In Their Markets

Strategy Execution: Form Follows Function