logo










Barriers to Great Success - Private Equity: Reward versus Risk

Article by Peter Clarke

The recent proliferation of private equity funds shows that there are still mountains of money to be made through financial acquisitions, aggressive growth and timely sales. We have seen some great successes adding millions of dollars to shareholders' value but we have also seen some spectacular failures.

So where do the big risks lie and how might owners mitigate them? This article tells the story of a recent (and on going) changedrivers' intervention on behalf of one of Australia's major private equity funds. The names of the fund and the acquired company have been protected.

Facing some very aggressive targets for growth, ABC Pty Ltd found itself in a totally new and unfamiliar strategic environment. Suddenly, there were funds for growth and for strategic acquisitions, and plenty of high quality advice from some of Australia's best financial managers. The CEO and his executive team confronted a very different board from that to which they had been accustomed. This new board, which included the CEO, set and insisted on targets that would have seemed ridiculous under previous ownership. The board sought growth in all market segments and employed a much more "hands on" approach to their investment.

While the injection of working capital produced early tangible results, it soon became clear that the rate of change was placing considerable stress on the executive team. This team had remained largely unchanged during and after acquisition - it comprised an impressive and enthusiastic bunch of men and women all of whom were totally committed to make ABC a great success. But enthusiasm and commitment aren't always enough and, no matter how thorough the due diligence, cracks often emerge under stress.

This led to a pivotal question of organisational capability:

"Have we got the right people on the team and, if not, what do we do about it?"

Following a tender process and against some impressive (and considerably cheaper) opposition, changedrivers won the job of answering these questions.

Our process has been to apply our Strategic People Capability Assessment and Development (PCAD™) method. This is a multifaceted approach that works in four phases:

  1. Establishing current Roles, KRAs and KPIs and any difference between them and what will be required in the future (i.e. between now and selling)
  2. Determining the competencies, attributes and potential of the current team
  3. Identifying organisational, team and individual areas for development
  4. Agreeing and initiating an implementation plan

We employ a range of proprietary tools including Functional Performers business analysis, LaunchPad profiling, SoftSkills assessment and 360° reporting. Bringing these together in a carefully synthesised and revealing report and through a series of team workshops and individual debriefs, we have been able to address the key questions at the heart of ABC's future success. Our underlying philosophy is to develop the incumbent team so far as possible rather than simply fire and hire - this is especially important in the light the ever fiercer War for Talent.

As a direct result of our work, the CEO and board now have the right structure and people to take ABC Pty Ltd forward and a targeted development plan for each senior manager. Significantly, this has been achieved with the active support and eager participation of the team. In particular, the CEO now has in place:

  • Better and clearer accountability at senior levels
  • The right people in the right place
  • A carefully targeted team and individual leadership & management development program for senior managers and executives
  • An even more supportive and confident board

So what does this mean for you?

Although it does reduce risk of failure and loss, the PCAD™ process is not the sole preserve of high finance and shareholders' millions. It is about building organisational capability in a tailored way and with the minimum of fuss. If you face organisational challenges and wonder whether you have the right team around you, PCAD™ will not only answer your question, it will enable you to generate the team you need.

People capability is pivotal; it's notoriously difficult to measure and very expensive if you get it wrong. Changedrivers now has a proven method to help you and your organisation succeed in this vital area.

If you are interested in PCAD™, please call Peter Clarke on 0448 081 780 or email at peter-clarke@changedrivers.com.au