Private equity investors are often seen as change agents. After all, the idea is that they spot potential in a company that for some reason has not realised its opportunities to grow and turn it around into a profitable investment. But why wait for someone else to realise your full potential when you can do it yourself? Engage in an imaginary game where you come in as an impatient investor in your own company. What would you do?
Private equity investors come in with a sense of urgency as the goal is a successful exit within typically 3-5 years. What you need to do is instil an atmosphere where everyone in your organisation is geared up for a new ambition level. You need to articulate where you want to be in say three years and start working towards it immediately in a structured way.
Scrutinize your strategy
Obviously, you will start by taking a close look at your strategy. Are you aiming for the right spot in the market? Is the position you are aiming at supported by megatrends and target group preferences? Then you need to make a step-by-step plan for how to get there.
Take a critical look at your numbers
Deep dive into your measurements and decision-making process. Do the measurements reflect the underlying reality of your factory floor, processes, goals, and incentives? A common mistake is that you start looking too rigidly at your costs. This is the wrong approach for two reasons. The first is that it may hamper your growth ambitions because growth is seldom achieved by minimizing costs. This takes us to the second reason: instead of focusing on the production cost, consider the potential value that can be generated with your current capacity. Understanding your full potential is the first step to take concrete actions and increase profitability.
Tear down the silos
This leads us to the need of looking at your company holistically. Tear down the silos and focus on overall profitability. Optimizing the profitability of different units or silos doesn’t mean that you are optimizing total profitability. As an example, some product segments or products that seem unprofitable can in fact contribute to overall profitability and cash flow. Lack of awareness how your numbers' game works will most likely lead to bad decisions.
Focus on your incentive structure and follow up on progress
Tearing down silos will have implications on different Business unit’s KPIs and incentive structures. Surprisingly often the incentive structures set the basis for a zero-sum situation: one Business unit’s win is another one's loss. This is usually the result of cost allocation frenzy and internal transfer pricing principles that will distort the actual performance of different units. If you want to incentivise different units to sell more, focus on relevant KPIs that measure the added value or cash flow a specific unit adds to the total system.
We all have a reason to get out of bed every morning. How you incentivise different units and individuals will have a tremendous effect on your growth curve. It's difficult to raise the ambition level in the organisation if the 'what's really in it for me' element is missing. If you want to instil a true ambition for growth you need to find incentives that motivate the whole organisation to work towards a common goal.
Rigorous follow up and the ability to take corrective actions is important during your turnaround journey. Make sure you are executing in a structured way. That's what your investors would do.
Finally, for a successful turnaround you need to ditch old bad habits. After all, private equity investors usually have a better shot at turning companies around simply because they do not have the baggage of old habits. Shake off yours and go for a retake on your own company!