Guest Author: Marc Prine, Ph.D.
Marc is a Senior Advisor at 29Bison and founder of MIP Consulting, specializing in optimizing the selection, development, engagement, and retention of employees through use of people analytics, assessment, and psychology.
Last month we shared with you 14 Ways to Increase the Probability of Achieving Targeted Returns on your Investments which highlighted 14 targeted ways to capture ROI on your deals. Let’s take some time peeling back the onion and focusing a bit more on some of the ideas introduced in this article.
Private equity firms attribute 32% of their decision to invest to the quality of the product and 31% to the quality of the management team (Alexander & Davis, 2016). Firms know they are betting on the jockey just as much as they are betting on the horse.
How does the horse know where it should be running? Just because a CEO and leadership team grew a company to $20 million, does not necessarily mean they are able to actualize your return on investment and grow the organization to $100 million.
When asked the most important and predictive aspect of due diligence, 44% of private equity firms said it was the analysis of leadership talent done by a management psychologist (Alexander & Davis, 2016). This is where we bring a comprehensive assessment strategy, not only to the due diligence process but also post-deal. Our philosophy is that talent data should be descriptive and prescriptive. This is depicted in our assessment methodology:
"Ambiguity is the death of productivity."
What is happening to ensure that your new leadership team knows how to get to the finish line? Item #9 on our list highlighted the importance of properly defining roles. Ambiguity is the death of productivity. All too often, leaders continue to do what made them successful yesterday without considering how they need to adjust in order to meet tomorrow’s challenges. Your framework for looking at leadership during due diligence and beyond, should be built on expected outcomes and future challenges, in addition to past accomplishments. By identifying the knowledge, skills, abilities and competencies vital for ongoing success, you can align expectations and remove the dreaded ambiguity.
Once you have established your target expectations, it’s time to evaluate your leadership team to understand where people stand (our recent blog post’s item #7!) Providing a mix of psychometric assessments, behavioral and situational interviewing, and qualitative feedback from others, will provide a comprehensive understanding of how well the leader is prepared to execute on the desired future state.
Here is where the process stops just being descriptive about individuals and turns into a prescriptive action plan moving forward. #14 on our recent list mentioned turning hope into action! By reviewing the assessment, both the model moving forward and their individual results, expectations are aligned, and developmental opportunities can be discussed. Nobody is going to fit a model 100% so knowing where holes exist can help management formulate a better path for moving forward.
Overall, as we mentioned last week, you can chart a path towards deal success. 42% of deals go south because of talent issues (Nahass & Suidan, 2017). This assessment process will add rigor to your due diligence and allow you to evaluate how to best operationalize your investment strategy and identify risks in execution.