March Issue

Welcome to my newsletter. Consider this a collection of insights and ideas from myself and the team at CEO.works.

Talent to Value? in Private Equity

As private equity firms continue to seek novel avenues for value creation, talent management has emerged as a vital lever. Drawing from my experience collaborating with such firms, I have witnessed firsthand the formidable impact of a well-crafted talent management strategy.

Bill Allen shared some thoughts recently that I believe illustrate perfectly how our Talent to Value approach can help portfolio companies, especially through disruption. Here is an excerpt from his article titled "How to Avoid the Two-Step (Backwards) in Private Equity:"

We all know what it’s like when a company starts to stumble. It feels as if, for every one step forward, you take two steps back. Targets continue to remain just out of reach. Progress falters, halts, even reverses. Not only is this frustrating. Quite honestly, it’s exhausting. And in the world of private equity, the constant friction produced by “one step forward, two back” contributes to something we would all love to avoid: the high failure and high churn rates of our portfolio company CEOs (respectively, 56% and 58% within the first two years, according to AlixPartners’ research). 

The normal response in PE to a “backward two-step” situation is predictable. First, there is an attempt to explain away the problem—whatever it may be—and, either internally or externally, lay the blame on some extraneous items or one-offs. However, explanations are not solutions. Unfortunately, the problem persists. More forecasts are missed. More customers are annoyed. Soon the board starts to grumble. Everyone in the portfolio company wonders, “Why can’t we get out of our own way?” With any luck, that line of inquiry, combined with general dissatisfaction with the status quo, nudges the firm and the portfolio company’s leadership to ask another, more fundamental question.

What changes do we need to make so we can consistently move forward, create value, and feel like we’re winning?

The answer, I believe, comes down to talent. What I mean by that is best illustrated by quotes from two of my friends. The first is from Frank Blake, the former CEO of Home Depot, who said, “The two most important jobs that a CEO is responsible for are the allocation of capital and the allocation of talent.” The second is from my friend and partner at CEO Works, Sandy Ogg, whose voice I hear asking, “Do we have the talent in the C suite that is up to the task at hand—and have we allocated the right talent deep in the business that will solve the problem and create value?”

These ideas align with my experience in the field. Typically, PE firms find it challenging to look with rigor at what might be wrong with the talent in their investments. Perhaps someone at the top has been an extraordinary performer in the past, but they are not up to the current task. Or perhaps there is not enough of the right kind of talent at important points of impact down in the organization. Left unaddressed, these issues increase execution risk, start the backward two-step, and, more often than we would care to admit, leak value. Fortunately, there is a very precise way to go about addressing them. 

Address Execution Risk with Talent

First up is for the portfolio company CEO to deeply understand the ambition for the business, as expressed in the form of a value creation plan. With a clear understanding of the sources of value, they can identify, along with the PE firm’s deal team, the work that will effectively deliver that ambition and the roles that will perform that work. Success, of course, will depend on also gaining the alignment of the entire leadership team and the sponsor on the value creation plan, the work, and the roles critical to successfully delivering the value. Let’s look at how this value-centric approach to talent allocation played out at a new investment, a mid-cap manufacturing and distribution company.

The organization, struggling with pricing in an inflationary environment, had an urgent problem to solve. Two of their customers were responsible for 20% of the revenue. The leadership was reluctant to push pricing with those two customers for fear of losing their business. The alternative was loss-giving revenue, a very expensive band-aid from the private equity firm’s perspective.

Looking at the talent illuminated another path forward. We discovered there were two roles critical to value delivery in this area of the business: the Head of Sales and a pricing analyst.

Historically, the Head of Sales had been incentivized based on top-line sales. The incumbent had built an extensive network of customer relationships, including the two responsible for 20% of company revenues, and made a fantastic career based on her ability to deliver the top line. The existing incentive program had been a good deal for her but a bad deal for the EBITDA line of the business.

You can read the full article here.

CEO.works | Europe Webinar Series

Most of us understand first-hand the importance of creating value and driving company performance. But are you truly doing everything in your power to make an impact? In a world filled with trendy solutions that don't always solve business challenges, it can be tough to stay on track.

That's why I'm delighted to invite you to an upcoming webinar featuring Hein Knaapen, CEO.works Managing Partner and former CHRO, along with guest speaker Ronald Schellekens, Chief People Officer at Pepsico. Together, they'll explore the most impactful levers for success in the people domain and share their experiences with initiatives that didn't quite hit the mark.

Drawing on their collective expertise, Hein and Ronald will discuss the priorities and concerns of today's HR professionals, especially when it comes to engaging with the C-suite. They'll highlight the role of the CHRO in creating business value and share some of their own insights and lessons learned.

By attending this webinar, you'll gain invaluable knowledge and tools to help you focus on what truly matters and drive tangible business results through your HR contributions. Don't miss out on this opportunity to learn from two of the industry's most respected thought leaders. Register today and discover how to make a meaningful impact on your company's success.

Have you been able to join one of his webinars? If not, you can access them on demand on our website.

Do You Know About the CEO.works Shop?

I want to bring to your attention the CEO.works shop, where you can explore a range of talent management insights that will enable you to optimize your company's value. Our shop features a selection of whitepapers, books, and bundles authored by our Talent to Value? experts, providing you with the latest and most practical guidance. Visit shop.ceoworks.com to embark on your journey towards greater success in Talent to Value, and take advantage of the resources at your disposal.

Diamond Allegiance Hot Stove Session with Former MLB Catcher AJ Pierzynski

Veering a little from Talent to Value for my fellow baseball fans, I'd like to invite you to the upcoming Hot Stove session brought to you by the Diamond Allegiance. The event will feature former MLB catcher AJ Pierzynski, who will be taking center stage to share his insights and experiences.

As a seasoned pro with over a decade of experience in the MLB, AJ has a wealth of knowledge to offer about his journey to the pros and life after retirement. What's more, he has a son in Travel Ball, making this session a perfect opportunity to discuss the challenges and rewards of youth baseball.

Whether you are a coach, a player, a family member, or just a baseball lover, this session is a must-watch. 

This event will take today, March 22nd, at 6 pm EST/3 pm PST. Click HERE to register.

I hope you are enjoying my newsletter. Feel free to leave me your feedback in the comments section below.

Follow us on LinkedIn, Twitter, and Instagram.

Watch our videos on Youtube.

Visit our website for more.