Don’t Want To Borrow From The Bank? Here’s How To Improve Your Company Without Them!
March 20th, 2010
Are these results something you can you use in your portfolio companies?
· Telecom – Increased revenue by 33% in 7 months
· Manufacturing – Improved productivity by 62% in three months
· Aerospace – Reduced cost by 20% in 6 months
· Financial Services – Increased Sales by 20% in 3 months
· Construction – Reduced costs by 20% in 6 months
· Healthcare – Increased Patient Satisfaction (10%) & Reduced Staff Turnover (36%) in 6 months
These are just a few recent results that a change to participative based management has allowed companies to achieve.
The use of Participative Management tools in your portfolio companies quickly increase bottom line results. Benefits to the Portfolio Manager include:
1) Leveraging an asset that few companies utilize effectively – human capital.
2) Dramatically increasing performance in portfolio companies.
3) Measuring and improving employee commitment, motivation, and other lead indicators which directly impact your bottom-line.
“Private Equity needs to create sustainable and fundamental value beyond financial engineering” – World Economic Forum 2008
Traditional financial engineering and improved technology will only get you so far.make use of a forgotten asset in your managed company portfolio. Traditional management models will achieve average operational proficiency and may not maximize organizational resources. As Boston Consulting Group experts Heino Meerkatt and Heinrich Liechtenstein advise,“ . . . [Private-Equity firms] need to make-ready all their portfolio companies for a sustained and extensive recession, centering on operational advancements. As the peak-performing private-equity companies have demonstrated, operational value formation contains the solution empowering success in this economy. This will be the most critical differentiator in today’s recession, especially for the 50 percent of private-equity firms that are hovering between survival and extinction.”
Experts agree that in order to achieve excellence in the workplace, creativity and innovation are critical.
“The key to survival and success does not lie in the rational quantitative approaches, but rather in a commitment to irrational, difficult to measure things like people, quality, creativity, innovation, and developing the flexibility to meet changing conditions” – Tom Peters and Bob Waterman
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Peters and Waterman tell us we need to look beyond traditional metrics and harness intangible resources such as human commitment, motivation and trust. These intangibles (lead indicators) impact our tangible business results (lag indicators). Until just recently it was considered difficult to track and measure intangibles. Conversely, even the National Accounting Standards Board( NASB) counsels that measurement for intangibles emerge on financial reports.
At hand is a demonstrated practice that makes best use of tangible and intangible assets. We call it the “secret sauce,” it is very distinct from other management models because it utilizes tools and methods focused on human performance – a frequently overlooked factor that directly impacts the bottom line. Using strategic management tools, forward-thinking businesses obtain fast and powerful results. Rather than beating people into submission or taking a laissez faire attitude this method provides a sound structure that is simple and effective. Participative Management taps an organization’s human capital by giving employees in the workplace new tools that enable them to improve the business. Furthermore, it creates a sense of ownership among employees, which drives worker commitment and enthusiasm.
Motivation the Catalyst in Profit Formula – National Underwriter
John C. Bower, executive vice-president of Fidelity Union Life, noted, “a motivated workforce is the catalyst in the formula for increasing corporate profits. Highly motivated employees have a tendency to be more productive, which enhances profitability . . . Companies with the productivity edge usually outperform their competition.”
Recent Scholarly Work Supports These Critical Principles:
Improving Business Failure Prediction: Benchmarking Financial Models with Human and Social Capital –Journal of Private Equity 2009
“Research on entrepreneurship and firm performance indicates that human and social capital has emerged with strong predictive ability for business continuation.”
As little as 1/3 to ½ of most companies’ stock market value is accountable for today by hard assets such as , property, plant and equipment. The growing share of value lies in intangible assets—Harvard Business Review 1998
We are moving from the Information Age to the Intellectual Age according to Richard Barrett (management consultant-business). Prosperity creation will progressively derive from the enhancement in value of intangibles. Examples of intangibles are human motivation, commitment, and trust.
In the recent article, “Human Capital Formation and Foreign Direct Investment in Foreign Countries” Koji Miyamoto writes:
“One of the characteristics of rich industrial economies is the availability of a workforce with a high level of human capital. . . [L]ong time series trends in educational attainment and economic growth during the last century indicate that [Human Resource Development] and economic prosperity went hand in hand.”
“Private Equity Companies need better management practices in their portfolio companies –“ World Economic Forum 2008
During this recession Private Equity firms will have to hold on to their portfolio companies longer and adapt their business models to accommodate the downturn. Private Equity firms can adapt their business models by focusing on improving operational performance and internal capabilities for sustained long-term results.
Caridas Consulting International (management consultant-business)
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