“Leadership is a way of thinking, a way of acting and, most importantly, a way of communicating.”
~ Simon Sinek, Author of “Start with Why”
Digital transformation is a critical process for any organization, especially for Private Equity (PE) Operation & Portfolio Company (PortCo) Management teams that want to create value and stay competitive in their markets. However, as we’ve noticed over the last decade working on hundreds of digital transformation projects with various PE firms throughout the deal lifecycle, such projects can face various misalignment issues that can hinder their success. As a result, it’s essential to mitigate these issues by aligning the strategic plan, fostering and executing clear communication, and building trust. This blog will discuss these misalignment issues and how to mitigate them in detail.
The Role of PE Operating Teams
A PE Operating Team’s primary role is to become a trusted advisor to the PortCo’s C-level Executives. The partnership’s success hinges on the degree of vision alignment, clear communication, and level of trust developed between the Operating Team and PortCo Executive Management Team. The higher the degree of these three factors, the more likely the PortCo Management Team will seek and follow the advice of the PE Operating Team.
Common Areas of Misalignment
Disconnect re Strategic Vision
PE Operators have a number of playbooks to choose from when determining the post-investment path forward. The decisions taken should align with the PortCo’s strategic goals. Having alignment between the Operating and PortCo Management Teams about the ultimate PortCo goals and how best to achieve those is key to the two teams working well together.
Disconnect re Knowledge Gaps
When transition occurs, there can be changes in PortCo Management or Executional Team members. This can lead to a loss of institutional knowledge, especially if processes weren’t well documented. The lack of knowledge can lead to misunderstandings and missed opportunities, ultimately impacting the project’s success.
Disconnect re PE Operator vs. PortCo Management Team Roles & Responsibilities
With any new team formation, establishing clear roles and responsibilities and rules of engagement are critical. It is important to establish the Operating Team’s level of involvement in day-to-day activities from the start of an engagement. The lack of clarity can lead to misunderstandings, delays, and unproductive friction.
Mitigation of Frictions
Aligning on the Strategic Vision
Start by clearly articulating and agreeing on the strategic goals of the PortCo and design an execution strategy that achieves those goals. Use those goals as a grounding framework throughout the engagement, to ensure that all activities align with the stated goals. The alignment between the Operating and PortCo Management Teams about the ultimate PortCo goals and how best to achieve those is crucial to the two teams working well together.
Practicing Clear & Consistent Communication
Clear communication is crucial to overcoming any potential misalignments. Define the roles and responsibilities for each team and establish communication channels, meeting cadences between key stakeholders, and escalation procedures so that communication procedures are understood by all team members. Once established, it’s important to abide by the communication plan and to communicate clearly. Clear communication fosters understanding, collaboration, and alignment between the teams.
Building trust between team members is essential to overcoming misalignments. This is facilitated by executing the strategies outlined above well in addition to an additional strategy, which is early engagement between Operating Team members and the PortCo C-suite. Early engagement allows for trust to be built from the beginning of the project, fostering a collaborative working relationship that can lead to success.
In summary, digital transformation projects involving Operating and Portfolio Company (PortCo) Management teams can face misalignment issues that can hinder their collective success. However, aligning on the strategic plan, fostering and executing clear communication, and building trust are essential to overcome these misalignment issues.
“Leadership is about knowing when to listen, when to speak up, and when to step back and let others take the lead.“
– Deborah Meaden, Dragon’s Den