What should Change Management really mean to Private Equity?

Change Management is surely just the internal actions in a company to execute the structure plan and correct the business processes, right? No, there's a lot more to it than this. The discipline of 'change management' is a broad church that covers everything from continuous improvement to corporate re-structuring, and it embraces all stakeholders, internal and external.

The private equity world inevitably triggers a lot of change. Private equity does not invest in or take control of a company just because it is running nicely; in the majority of cases the companies are under-performing or unable to expand, and the investor sees an opportunity for improvement which requires anything from modest adjustments to radical surgery. The investor is often an external stakeholder who is imposing change, for the benefit of the company and of course that investor. The change management needs to work effectively across this arms- length relationship.

There are countless books on the subject, covering the complexities of changing structure, process, product and service (and perhaps one day I might add another). Here I focus on three inter-linked factors for success that are often poorly addressed: People, Priorities and Sustainability. Most importantly, the crucial factor in successfully achieving any change is people.

This article is not a woolly argument for team-building sandcastles and a Perrin-esque resident wellness consultant; it is a spotlight on to risk reduction and speed of delivery during significant change brought about by external influences.

People
The single common factor across all change in all organisations and societies is people; and people can be very difficult, unpredictable, time-consuming, expensive, even dangerous. What you cannot do is get rid of them all! What you must do is understand their incentives – in this the Freakonomics boys were spot on.

The central point is that imposed change is likely to be a high-risk approach. If the management and staff are not 'signed up' or 'enrolled' then there are the dangers of mis- implementation, back-sliding and sabotage. Even dictatorial regimes suffer from rebellion. Yet imposed change is often at the heart of the private equity model. So how do we square the circle?

The simple answer is in a single word: trust. With trust in place, mountains can be moved. The more complex answer is in how to achieve that trust. I recommend the following framework, which is adaptable to each individual circumstance:

The change is led & facilitated by a high-profile individual who is outside the company's operational management. They may be someone assigned from within the company, or an investor, or an external practitioner – the important point is that this change manager is experienced, dedicated, very visible and with no conflicts of interest. If they are not a subject matter expert in the company's business then they are better able to challenge and pose the 'dumb' questions without blinkers or assumptions or historical/emotional baggage, and they can act as an independent 'sense- checker' that the big picture is understandable by all.

There is open consultation throughout the company, even if the senior stakeholders (executive management & investors) already believe there is only one practical option; this starts to break down the "us and them" mindset, and just might provide extra insights from inside the company – at all stages there is a clear channel for any staff to raise constructive questions or suggestions, with responses provided swiftly and positively, and a clear understanding of the various timescales.

The senior stakeholders define a clear statement of their vision for the outcome and the expected high-level benefits – purely the 'what & why' without addressing the 'how, who, where & when' – this is communicated across the whole company.

This statement is expanded into a detailed business case that identifies all the different business approaches that could be taken, and examines the consequences of each measured against the expected benefits, and justifies the selected approach. The 'do nothing' option must be included to show the consequences (usually dire) of inaction.

The business case is summarised for each group of people in the company in a way that aligns with their interests and incentives, again being open to feedback, so that each group can identify their role in achieving a successful outcome.

There will be occasions where one or more groups are adversely affected. These groups must be briefed before everyone else to manage & contain any disquiet or disruption.

If the above is conducted in an honest, open and transparent manner, and if the senior stakeholders listen to the staff, then people will feel they understand the issues and their part in making the change ... even if they don't like it. The implementation can then proceed with a higher degree of confidence and a predictable timescale.



Here is a simple example to illustrate the incentive alignment. A global company operated training separately and differently in various geographical centres, largely for historical reasons. The vision was for a global service to manage and deliver training, the expected benefits being to provide more training for less overall cost with a move to online learning and a global view of effectiveness. The concern from the staff in the centres was it would cost money to 'go global' and there would be no local benefit. Indeed they feared for their jobs. The response was that with budgets going global, no visibility means no local budget; shared experience and resources across centres allows faster response to business needs and happier customers; the grind of delivering classroom training moves to the challenge of online training design and support; the local liaison is still needed and grows into broader HR support. So all the training staff had an opportunity to grow, and the company saved money and released stretched technical resources by replacing 5 systems with 1 system. Once the staff 'got' this, through a series of collaborative workshops, it was just a question of negotiating the global system functionality and migrating them from 'the way we've always done it' ... and that part is another story.

Priorities
It is often the case that many things need changing in order to achieve the desired end result. This does not mean that all changes should be pursued at the same time. In fact, that approach is almost always a bad idea.

The essential advice especially in a crisis is to move more slowly and deliberately at the outset, rather than rushing off in a panic. The experience of sailing can provide useful metaphors for business, none more so than "hasty fixes usually causes more problems" (and yes, I do have real scars as evidence of learning).

So armed with a full understanding of the required outcome, and the rationale for it, the next step is to establish and understand the constraints and dependencies, both internal and external, that bear upon the actions. It is helpful, if possible, to gauge this against the contribution each change makes to the big picture.

A set of priorities can then be assigned, which depend upon the circumstances: you might choose to give top priority to the 'biggest win' to reduce the risk of that over-running; or you might choose to prioritise a couple of small 'quick-wins' to show early progress and boost morale. There are many variations, but without the preceding analysis there will probably be some chaos and much disappointment.

Just a word about 'paralysis by analysis' – it happens to the best of us ... you should have seen me deciding on my mobile phone contract; the way to avoid it is to accept that decisions are made on the best information available at the time, rather than on perfect information, which is a rare animal.

Here is a practical example of recovering from doing the wrong things for the right reasons. A division of a company had been criticised in an external audit, with a list of 12 required action areas. They rushed off to tackle all of them at once, because they had promised resolutions within a single tight deadline. However many of the areas were interdependent, requiring resources from the normal operation ... duplication, confusion & frustration reigned. The recovery was to stop everything, look at the big picture and which actions best deliver against that, map out the sequence of actions according to dependencies and resourcing, construct a realistic timeline, and re-negotiate a sequence of deadlines with the external authority.

Sustainability
The evolving model for private equity, as seen by PILOTpartners and others recently, includes a longer-term involvement than has been common in the past – this suggests a measured approach to change management with an increased focus on the relationships and sustainability.

There is little point in making a change if that change does not 'stick'. The above advice on people and priorities will certainly contribute towards the sustainability of a change. Sometimes, however, more far-sighted forecasting is also required, verging on clairvoyance.

This forecasting might be as simple as analysing all the dependencies in the operation, or it might require sophisticated scenario modelling that looks at the company in the context of the whole economy. The important thing is not just to ask yourself 'what could go wrong in making this change?', but also to ask 'what could impact it after it's done, and how can we reduce that risk?'

Here is an example of structuring change to be sustainable in the face of evolving circumstances. An air travel organisation was moving into a new building and consequently changing its business processes from top to toe. The inter-connectedness of all the processes was so familiar to those at the coal-face that it was not discussed, meaning that a small variation in a planned change in one area would ripple through the whole process structure. The approach taken was two-fold: first to prioritise the definition of the connections between discrete business processes, rather than the processes themselves – if the connections are sustained then the whole structure is sustained. Second, to set up rolling reviews to capture and share lessons learned and sign-off on incremental improvements both during and after the changes.

Some final comments
It is well-known that people in general dislike change, that they prefer things to stay as they are. Conversely there are people who use change as a smoke-screen or excuse for poor performance.

The danger of 'continuous change' (a much-used phrase) is that it debilitates an organisation, demoralises individuals, sucks resources & budget, and at worst it is a Ponzi scheme of funding the next change with the savings from the current one and never delivering a penny to the bottom line.

We must recognise that the desirable status of a company is the steady-state operation that is profitable (in whatever terms are relevant to the business). Significant change moves the company from one steady-state to another, better- performing steady-state, whereas incremental change fine- tunes that steady-state via small and reversible adjustments.

This article represents my views, as a result of 16 years as an interim in 12 different organisations, after 20 years employment in 4 companies, and alongside 7 years as a trustee/chairman of a national charity. As with any views, they are of course open to challenge and debate, and I will be more than happy to engage in such; there is no single 'magic bullet' answer to getting change 'right'. What is highly desirable, and indeed practical, is to have a common, consistent & visible framework for action which is adapted to individual circumstances.