Leverage External Partners to Accelerate Value Creation

 

In August, I had the privilege of both attending and serving as a panelist at ACG’s first-ever Operators’ Summit. Given that the overall topic for the day was “Accelerating Value Creation”—something TBM is emphasizing with heightened urgency in these challenging economic times—it was a great opportunity to come together with leaders from PE firms and portfolio companies and take the pulse of the industry. The recurring theme for the summit was this: good companies perform even in tough markets by implementing consistent, repeatable, and effective processes for value creation. 

One way they do that is by getting expert support when and where they need it. 

This is what I and two other panelists discussed in a session entitled, “Outsourcing Strategies to Improve Value Creation.” Jon Repka, VP of Growth at Paro, a company that specializes in outsourced finance and accounting solutions, moderated. I weighed in on the topic along with fellow panelists Tim Kardish, CEO at Gerald Daniel Worldwide, and Kunal Mehta, Partner at Bain & Company. 

As a diverse panel, we represented all sides—from former PE Principal, to the portfolio company CEO, to the consultant—providing a 360-degree view of what an outsourcing relationship can and should be when it comes to value creation. We debated a number of great questions, including:

  • Where can outsourcing drive the largest lift? Fast-tracking go-to-market, accelerating time-to value, time sensitive operational excellence, and continuous improvement initiatives are some key areas. 
  • What are the best criteria for selecting a partner? Strong references, a track record of success with multiple clients, ability, expertise to get the work done, and transparency all matter here.
  • How can a company get the most out of an external consulting relationship? The remainder of this post highlights the strategies that emerged during this part of our panel’s conversation. 

4 Ways External Consultants Can Help Optimize Value Creation

  1. Define the goals and establish the roadmap. In a private equity situation, there are already two critical parties involved: the investors and the onsite operating team. When you add an external consultant, collaboration and alignment become even more critical to keeping everyone on the same page and working together.

    Consultants can help with clarifying deliverables and timelines. To do this, the consultant must have detailed knowledge of the investment thesis and performance expectations of the PE firm as well as the current state of the portfolio company. By preforming an objective diagnostic of current operating conditions, the consultant can then establish the pathway or roadmap to close gaps between current and expected performance and create the scorecard for keeping track of progress.

    Of course, sometimes a PE firm’s expected performance could fall short of the company’s true full potential. The most skilled consultants will use insights gained during the diagnostic to frame all that is possible for the company—within the holding period and beyond— and define how to take the business to next level and truly set it apart from its competitors.

  2. Determine the change readiness of the internal team. External consultants are most successful when they work collaboratively with the internal teams to achieve performance potential. But not all members of the internal team are always fully and immediately on board with the changes to be made.

    Talent and culture assessments  are important tools for determining where each member of the team stands and what is needed to bring the group together. Sometimes, consultant can identify internal skills and competencies that simply require engagement, coaching, and mentoring to be developed. Other times, a change in leadership may be needed. Determining this sooner than later is critical to creating alignment and putting the best possible team in place.

  3. Create a sense of urgency around execution. In PE-owned companies, the clock is always ticking. Achieving the PE firm’s expectations and full potential  of the business in the allotted timeframe requires a focus on proven methodologies that yield rapid results. External consultants have the expertise and experience to put these processes into practice quickly.

    One tactic that can be extremely successful is to create a matrix that identifies and prioritizes the high impact/low difficulty improvement projects. These are initiatives that can be implemented quickly with limited effort—and in the PE world, fast and simple always beat slow and elegant.

    The rapid results build momentum. Just as important, they establish trust between the internal team and the eternal consultants. As one panelist mentioned, starting small and winning over the minds and hearts of the team with rapid successes is often the most effective way to set the tone and cadence for the additional work that needs to be done. In other words, you can ultimately move faster when you’re willing to start small.

    Establish a steering team with representation from PE, Portco leadership, and consultant(s) at appropriate frequency to ensure execution. The role of the steering team is to monitor the progress on deliverables, offer feedback for any course correction, and address escalations timely.

  4. Establish meaningful ways to sustain the gains. In most cases, external consultants are not intended to be a part of the team forever. But the impact they make most definitely should be. Consultants must establish processes for knowledge transfer so that companies can retain the learnings from the experts they hire.

    Consultants can also recommend and help implement tools, processes, and methodologies, such as a  management system to help the team achieve and sustain gains.

    The ideal result is for the team to begin identifying and driving their own improvement projects. When this aptitude for continuous improvement becomes part of the culture, the portfolio company is in the best possible position to realize its full potential during the holding period and beyond. 

Get the greatest value of out of your outsourcing engagements. 

In today’s economic circumstances, portfolio companies need processes they can trust to accelerate value creation, and external consultants can bring the experts and bandwidth to put those repeatable and proven methodologies into place. When consultants help with defining the roadmap, engaging the internal team, establishing the momentum, and equipping the company for ongoing success, they can be invaluable resources in helping the company meet and even exceed their PE investors’ expectations.