Transformation in Private Equity: Delivering the Value Creation Plan (VCP)

To use a musical analogy, for any portfolio company (PortCo), strategy and transformation are in the same band.  If your Value Creation Plan doesn’t align with your Transformation Delivery Plan then you probably need to put the band back together.

The best articulation of a Strategy for a Private Equity PortCo is a well-defined Value Creation Plan (VCP). It’s a powerful tool that prioritises value initiatives and should also define owners and key results.

However, even the best of VCPs don’t manage or track the delivery and execution of the initiatives that generate key results.  This is where Transformation discipline is essential.  To deliver the kind of change required for strategic impact there is no substitute for the disciplines of project, programme and change management.

At risk of making Transformation sound dull –my point isthat every successful band has a rhythm section. Lindsey Buckingham and Stevie Nicks would have struggled without Mick Fleetwood and the Macs behind them. And  would  The Stone Roses’ Ian Brown and John Squire sound quite as good without the driving rhythms of Mani and Reni behind them?  You get my point.

Since every musical analogy needs an example or two:

1. Imagine the VCP has a “shift to value-based pricing” as a Priority Initiative that supports Price Optimisation / Revenue Growth. But the CMO will not achieve the target margin uplift without accurate customer buy data (a dependency on the FP&A project) and without access to key Salesforce resources (resource planning). Resource planning and dependency management? – Transformation and project management discipline.

2. Or… the VCP has an initiative to increase products per customer and support Revenue Growth. The CCO is the sponsor, but sales platform amendments are required. Sales platform amendments sit behind enterprise platform consolidation in the CTO stack.  Business case comparisons and investment / resource planning options are needed to make multiple priority calls – meat and drink to the Transformation Director.

Can individual Transformation OKRs (Objectives & Key Results) drive the successful delivery of VCP initiatives?  Potentially, but this approach places the emphasis on existing operational resources. No Transformation has truly succeeded by being delivered on the side of a desk. That is Continuous Improvement. Significant Transformation that will deliver strategic value requires capability and resource that should not exist in a steady state organisation.

Is there a method to tie a Value Creation Plan to Transformation Delivery? Can the “what?’ of a VCP strategy be aligned to the “how?” of a Transformation plan?

One method is Hoshin Kanri – using a matrix and lean principles to ensure the organisation is focussed on achieving VCP initiatives.  Sponsorship, resources, dependencies, RACI, KPIs on one page.

Hoshin Kanri matrix

Turning this Jackson Pollock of a page into the realisation of a VCP Transformation will however take commitment, capability and drive. But if you can find yourself a good rhythm section, well versed in art of transformation then you should be in for a great gig!

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