The Impact of Not Getting Your Leadership Team Right: The Value of Accelerated Executive Assessment and Developing an Operator’s Playbook.
Written by Osborne Principals, John Scheel & Garry Wood.
Can Private Equity investors or M&A firms wait for the existing managers to perform and transform at the same time?
Investors are always looking at ways to minimize investment risks. Investing firms have historically been strong on financial due diligence but have not had an effective process to quickly assess the ability for the leadership team of a company to excel in an environment where the market dynamics have significantly changed.
Market insights from prominent firms that have watched the Private Equity (PE) and Mergers & Acquisitions (M&A) sectors grow exponentially in the past decade paint an unflattering picture:
- Forbes estimates that half the time portfolio firms fail to achieve returns investors expect, its due to the wrong leadership running the companies.
- According to Bain, ninety percent of the time at least one member of the executive team left or was exited from the portfolio company within the first year of acquisition.
- In the portfolio companies it looked at, Boston Consulting found that nearly half of the owners changed the CEO’s. In 60% of the cases this was not planned at time of acquisition.
Based upon years of leading prominent Canadian and US corporations through successful turnarounds, Osborne Group principals Garry Wood and John Scheel are convinced that a company’s leadership and team dynamics have a direct correlation with its upward revenue growth and profitability. It is a proven fact that cohesive leadership teams are twice as likely to achieve above average financial performance (McKinsey, 2017).
Research done by the Osborne Group indicates that in most corporate acquisitions, significant changes are not made to the leadership team until twelve to eighteen months after an acquisition. To address the need for active leadership from day one, the Osborne Group has developed a program that accelerates the assessment of the leadership team and reduces that timeline to under six months. This program focuses on three critical steps.
The Art of Listening
The first step prior to the team and individual assessment process begins with understanding the goals the PE or M&A firm has for its portfolio company. The importance of ensuring goals are aligned between the leadership group and the PE firm cannot be overstated as it is the most critical component of success. Unfortunately, far too many PE firms and their portfolio businesses fail to operationalize around common goals.
The Science of Assessing
The next step in the approach includes examining both the team and the individual from a variety of angles and drawing on the depth of leadership experience and perspective our principals share with clients. This approach includes understanding more precisely why a management team or an individual acts the way they do. The assessment process is supported by a psychometric assessment of the team, the individual and identifies future CEO potential within the leadership team. Gaps that may exist in the leadership team and their ability to execute the strategic plan are clearly identified.
Building a Playbook
The final step is building an operational playbook. All the necessary information for positive and effective action is captured in an “Operator’s Playbook” on how to better improve performance and change ineffective leadership practices. Meaningful value creation can only be achieved if the team is aligned, the right executives are in place, and there is a plan to address existing gaps. The Operator’s Playbook is supported by a series of in person visits by the Osborne team to ensure the plan is being followed, remains active and does not become shelfbound or static.
The more perspective one has about the executive team and the individual leaders in a company, the better chance problems will be managed and lead to stronger results. The sooner an assessment of the leadership team is performed, the faster long-term value can be created. The Osborne Group has the experience and the insight to deliver an operational playbook that can help your leadership team transform and perform for you simultaneously.
We help Private Equity and M&A firms accelerate the assessment of the leadership teams of their portfolio companies. Grounded by years of hands-on operational experience, Osborne Principals understand the dynamics of building high performing teams.