How might activities across the deal cycle evolve to become more value-adding?
Value Enablement Series - Part 3
Armed with more empowering assumptions; the insight, focus, and acceleration questions; and a desire to seek out low cost (in money but especially time) but high impact solutions, how might activities across the investment lifecycle become more value-adding?
Thinking more flexibly about the future
A key theme of value enablement is to reduce the excessive focus on a one-off value creation planning process. It risks turning the plan into an end in itself, effectively pushing smaller, more organic and effective interventions out of mind. This observation becomes even more relevant as the business environment has turned less predictable due to Brexit, Covid, volatile geopolitics and recession.
Greater uncertainties mean that a five-year VCP needs to become less of a formal model of what will happen quantitively and more of a scenario which is used to stimulate creative thinking in the boardroom about possible futures. Those futures mean that post-deal planning offers more a range of outcomes to underpin investment decision-making than a single base case. That may reduce the sense (illusion?) of certainty but might better align with the realities of strategy and planning under conditions of uncertainty. Instead, a less monumental initial VCP would give way to more frequent refreshes of assumptions, actions and planning scenarios.
So, what might a different approach look like?
Transition from due diligence to the end of the post-deal planning period
Pre-deal or straight after completion
A roundtable of DD providers to identify critical insights across the various workstreams. The purpose is to stimulate focused conversations about the most important issues post-completion – rather than depend on static reports. To get maximum value from such a session, these aren’t a round robin of each DD provider listing their individual conclusions. Rather, a facilitator identifies issues which cut across DD streams and the session generates integrated insights to help build focus.
Preparing for strategy
A pre-strategy workshop – soon after completion – where:
investor and Chair roles are clarified in more detail for management
board communication and reporting protocols are fleshed out
the CEO lays out their view of the growth opportunity, newly informed by what has been learned during DD
any quick wins or catalytic initiatives can be identified to build momentum before heavy planning takes place
key issues and questions, participants, as well as the stages for the strategy process are discussed and agreed.
100-day period
The key question here is how much investors and Chair want management to dedicate their energies to financial/legal snagging items and formalised Value Creation planning as opposed to:
reconnecting with clients and employees after a period of relative neglect during the transaction process
gathering critical insights for the strategy process
taking steps to clear organisational bottlenecks and executing on quick wins
Value Creation habits will argue in favour of predominantly planning and tidying; by contrast, value enablement suggests considering very carefully the opportunity cost of diverting management away from activities which will actually provide the foundations of value creation.
The strategy process
There is much can be said on this topic, but a summary view is that:
The prime purpose of the strategy process is to produce a roadmap of value-adding actions which management have the capacity and capability to deliver.
Good strategy usually revolves around solving a major challenge or two at any given time and then figuring out the supporting actions to make that possible. For growth companies, building capacity and capability is usually one of those challenges and so needs to be explicitly identified as a strategic priority with its own initiatives and resourcing.
Since rationing managerial bandwidth is necessary for strategy to remain executable, a good process requires ways of estimating that bandwidth, even if imperfect. Otherwise, making guesses (usually over-optimistic) on gut feel is hazardous when most of us are rubbish at calculating the impact of cumulative challenge and complexity.
We live in uncertain times, and the situation of growing companies can change quickly, so spending much time trying to plan for what happens more than 12 – 18 months out probably misuses time which could be used for building pragmatic route maps.
Defining executable strategy requires substantive input from middle managers who will end up executing the plan. Later, a proper roll-out across the business is required, including the creation of plausible and inter-connected functional plans.
Post-planning holding period through to exit
If the initial strategy is treated as a starting point rather than a monumental imperative, then clearly iteration becomes more important. How should value creation be pursued after the initial period of work?
As a matter of formal governance, some form of yearly strategy update, forecast and budget are scheduled for most companies. Likewise, there is typically input to investor quarterly portfolio updates. But thinking about value creation in a more substantive manner is probably best triggered when the board sees that the balance between goals and initiatives on one hand, and team and organisational bandwidth on the other, has shifted significantly. To help that triggering, the board can ask itself each, say, quarter, what strategic initiative progress has been made and what that says about the level of organisational stress.
The kind of scenarios where we see that balance shifting include:
A business which has seen multiple years of fast and strong growth, stretching the team/organisation structure further than current arrangements can support.
An investee is feeling stuck and growth targets are being missed. Something is not quite right but it’s not clear to management why or what they need to deal with first.
A company is experiencing a major market disruption. Management needs help to crystalise the situation, agree their priorities, and develop an actionable plan based on a tweaked business model.
A business digesting a transition in ownership or leadership. With the new dynamics the team needs help to realign to drive growth.
A change in the shape and complexity of an organisation through acquisitions or disposals.
A business is looking to optimise value prior to exit over the next 12-18 months’ time.
In each of these contexts, the key questions remain relatively constant even if the content of key topics are likely to vary significantly. The methods for generating the necessary insights and focus, and handling the resulting initiatives, will be covered in subsequent articles. But, overall, the aim with this more multi-stage approach is to handle value creation in a way that responds to uncertainties and makes better use of limited board member bandwidth.
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