Who should lead value enablement?
Value Enablement Series - Part 4
The assumptions, questions and activities underpinning value enablement are not especially complex, technical or proprietary. Nor do they require an armoury of special tools. However, apart from the necessary time, leading enablement processes probably does require a serious level of experience both with management teams and investors, and an ability to work across a wide range of issues: commercial, strategic, financial, organisational and managerial.
Such a leadership role is far from a solo one: after all the whole spirit of value enablement is to join up issues and stakeholders in a way that gets to the few things which really matter and then creates executable plans and executed initiatives. Moreover, the success of mid-market investee companies rests on a ‘triangle’ of CEO, Chair and investor director.
Deciding on leadership in this context requires looking at two different sides of the equation:
What is required from the main participants to made value enablement work?
To what extent do the candidates for leadership potentially satisfy those requirements?
What does value enablement require of its leaders?
We might try to answer this question by describing general characteristics. There are some, of course, including most saliently the willingness to manage a less scripted process with less (false) certainty at the end. That probably involves comfort with facing the unfamiliar and perhaps even a certain stubbornness born of conviction.
But, in reality, the requirements generated by trying to think through the what, how, why, who and when of value creation are so diverse that multiple contributions are needed from a range of perspectives:
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There needs to be a good dose of empirical understanding of the industry environment in which the company operates. Without that, value creation would be building castles in the sky.
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There is an imaginative leap involved in thinking how what we see today can become something bigger, better and more valuable in five years’ time. Unless an entrepreneur has pursued a similar growth plan previously, that vision may need to come from an outsider.
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Turning the raw material of industry knowledge and future vision into a staged and prioritised plan demands one or more people bringing sufficient structure to create order out of complex three-dimensional situations.
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Good data and process are rarely sufficient to bring diverse stakeholders together around a shared plan. Instead, different styles of understanding need to be reconciled, and divergent points of view thrashed out. That requires calibration of different scenarios and facilitation, rather than painting by numbers.
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In nicely arranged boardrooms it is easy to conjure up intellectually satisfying plans which, however, will struggle once launched into messy reality. That means a Devil’s advocate is needed, willing and credibly able to keep saying ‘yes, but…’
There are various ways these five requirements might be accessed within or beyond the boardroom triangle.
Who can bring what to value enablement?
Investors
Private equity houses can bring very different styles across at least two dimensions: the degree to which they are more hands-off or interventionist; the extent to which they see themselves acting through management or providing more formal or directive governance. Those dimensions strongly influence the roles their teams expect to play in value creation. For example, one house sends many of its investment team into new investees to get their hands dirty but, more frequently, investor involvement focuses heavily on transactions (including bolt-ons) and board events.
At individual level, investors can bring different experience and orientations depending on their specific roles: deal doers can be super analytical and keen on structure and process; operating partners may bring significant operating and domain experience; many value creation and portfolio people see themselves as the guardians of a programmatic approach to post-deal work. More senior partners can be skilled at helping define vision, creating alignment and bringing war stories to remind colleagues of the need for suitable scepticism about shiny plans.
Chairs
Investors usually have high expectations of Chairs when it comes to value creation. Many have been appointed with at least high-level domain knowledge and most are expected to create alignment within the board in both formal and wider contexts. Since most have held executive roles, they usually have decent experience of thinking about vision and strategy and they generally have sympathy for management constraints.
In practice, however, some investors rely more heavily on Chairs than others and appointees may be appointed post-deal so that they are in catch-up mode during the early post-deal period. It is also evident that some Chairs are at very different ends of a spectrum from being very mainly supportive of the executive team to being primarily challengers.
Third parties
The three constituencies above offer multiple routes to assemble all the various ingredients needed for successful value creation and enablement. In this context, how might a third-party add value?
Hitherto, the most frequent inputs have been consultants or corporate finance people bringing different aspects of process support: that can range from simple collation of due diligence recommendations to 100-page value creation plans. Other variants can involve top-up research on specific markets, or support for individual functional areas (digital transformation, sales effectiveness etc). For the most part, these interventions focus more on the ‘what’ aspects of value creation than the ‘how’. Where support is sought specifically on value enablement, it tends to revolve more around facilitation of process and alignment.
CEOs and other executives
Chief executives, of course, originate from a variety of backgrounds and can bring different leadership styles. Most bring significant domain knowledge but can have divergent involvement with detail. Some are very strategic and bring great vision, but may have lost contact with counter-balancing operational understanding. Others are stuck in the weeds and may be stronger at articulating why growth plans need to be cautious more than imagining how the business might look in a few years.
Some companies have well balanced top teams comprising relative optimists and pessimists, and with good representation across all major functions; others not so much. The presence of an solid FD also varies which can be significant in terms of investee’s ability to play their part in providing analytical and process input to value creation. Although still fairly rare, chiefs of staff can bring useful process orientation but also a connecting mechanism within an investee team.
Conclusions
The table below offers a quick overview – based on a subjective summation of my previous experience - of how the various players are more or less likely to contribute to the value creation process.
There are several punchlines to be drawn from this:
In four of the five areas of requirement, it is fairly clear who we might expect to bring what: domain expertise from the executive team; process orientation from investor portfolio people or third parties; alignment from the Chair (assuming they have been appointed); good paranoia about execution from the non-CEO members of the executive team. In regards to knowing what good looks like, i.e. having a vision for the future, that may be less determined: various players might bring that depending on their skills and attitudes.
The table visually implies that investor directors, assumed to be deal doers, bring the least to the party. However, this mostly reflects the fact that they tend to be involved in multiple other investee activities not captured here.
To have the highest probability of success in enabling value, the investor or Chair probably need to check whether all five contributions are likely to be provided by the people involved in post-deal planning and strategy setting. If there is a gap, it needs to be filled somehow.
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