Five Ways to Make Life Easier for Private Equity Operations Managers by using OKRs.
International Management Consultants AT Kearney* recently highlighted a number of familiar issues facing Private Equity Operations Managers whose role it is to oversee performance and growth across their portfolio. To quote the article “the dynamics between the two parties are often complicated by misunderstandings, confusing reporting structures, a lack of transparency, and ego battles. Both parties often fail to understand that the nature of the relationship formed at the board level. It is indeed triangular: the CEO, the PE deal team, and the PE Operations Team”.
The study also highlighted the major challenges in ensuring businesses stay on track post-acquisition, with everyone working toward a successful exit including the ability to detect early warning signs of business performance deviating from the investment case. Recognising problems early and taking remedial action swiftly depends on a positive and open partnership approach with the CEO and his SMT. There needs to be transparency of performance and clarity of decision making to ensure the highest exit returns.
It was no coincidence that John Doerr, credited with the successful application of Objectives and Key Results (OKRs)
to venture capital investments identified early on how the technique (mastered alongside Andy Grove at Intel) would help him oversee strategy implementation at VC house Kleiner Perkins.
The five superpowers of OKR…
Focus, alignment, stretching targets, tracking metrics and accountability were five superpowers of OKRs which, when used properly, go a long way towards addressing many of the challenges Operations Managers face. Here are five ways OKRs
can help today’s PE Operations Managers as they act as the important link between Deal Maker and the CEO.
Establish the intended outcome early
Focus means agreeing and concentrating on the important, putting to one side that which is not and ensuring the CEO, Deal Team and PE Operations Managers share a vision of what is required, by whom and by when. This may include identifying potential acquirers early on in addition to validating growth strategies, business transformation plans and of course the KPIs to mark progress toward the intended goal. Set the goal first, then work out together how to get there and stop doing things that don’t contribute.
Is everyone on the bus?
Trust is everything and the need for everyone to be pulling in the same direction goes without saying. Gainsayers will be found out, OKRs require transparency and very soon those who seek to slow the process or not pull their weight have nowhere to hide. On a more positive note, the sense of teamwork in contributing to a common goal will work wonders where OKRs’ weekly cadence of review provides encouragement or early warning signals where remedies are needed.
This is not business as usual.
PE companies buy to sell and having built or unearthed value unrealised under previous ownership they are always likely to set aggressive growth targets. Stretch is baked into the DNA of OKRs but by measuring only what matters in the quest for growth this philosophy can be spread throughout all operations of the business to drive efficiencies and improve operating results.
No Time for vanity metrics.
The important thing here is to work out the right metrics to drive performance and agree with the CEO and his team those numbers critical to the annual and quarterly reviews. Set and measure metrics that reflect customer value both for revenue growth and for efficiency gains (reducing the cost of new customer acquisition for example). Shared OKR software platforms will provide transparency and with the most appropriate leading indicators, there should be far fewer unpleasant surprises down the road.
Do what you say you will do.
Set up the rules of engagement with the CEO and his SMT early and stick to them. OKRs’ regular cadences ensure visibility and efficiency, cutting out unnecessary interruptions and allowing senior management to get on with the job at hand. The clarity OKRs offer ensure everyone knows what’s needed to be done, who’s doing what and how things are moving along. The Operations Team can become an integral contributor having a thorough understanding of the business and its strategy. By rolling their sleeves up where necessary their efforts are seen as important and not intrusive.
So Private Equity investors face the same challenges as any other business management team although the clock may be ticking a little faster. All businesses need to implement change quickly to grow, or even just to survive. The problem is strategies are easier to write than to put into practice and once implemented there needs to be a sense of focus, alignment, ambition, measurement and accountability. Without the effective delivery of strategy, businesses will fail, investors’ gains do not meet expectations or are lost
OKRs have been proven time and time again to ease the successful implementation of a validated strategy, investors using this tool can take heart that it’s worked for some of the world’s biggest and fastest growing companies and still is.