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[this post includes video]Orit Gadiesh & Hugh MacArthur
For companies that think fast and act quickly, a downturn might actually represent an opportunity to improve their competitive position. Indeed, a Bain & Company study of the 1991 recession found that, of the seven hundred U.S. companies studied, twice as many made the leap from poor performers to leaders in their sectors during the downturn, as those who made the leap during surrounding periods of economic calm.
Making such a leap in a relatively short time also happens to be what private equity firms do for a living. And, as we’ve been relating on this blog, the best PE firms have developed a repeatable process for success. The pace they set is swift, and amounts to the third lesson they teach us: accelerate performance.
This lesson is about building momentum. It is tied to motivating and rewarding the key players to accomplish change quickly. Priority one is molding the organization to the “blueprint” for action, which is a strategic operating plan that takes the few key initiatives that promise the highest payback and turns them into results, while matching the best talent to the key initiatives. It also means getting people to own these initiatives, and setting up rigorous program management tools to drive progress.
Critical among these tools is the development of a few key metrics to monitor progress, such as the customer loyalty measurement known as the “Net Promoter Score,” which tests your customers’ willingness to recommend your product or service.
These metrics go well beyond the deep pools of standard management accounting data—which are, for the most part, backward looking and nonactionable. To look into the future, other kinds of information are required, especially certain kinds of market and operational data. When you track the most critical data, you are in a position to determine whether the business is moving in the right direction or not. Your blueprint determines the key measures that are required to track the success of the chosen initiatives; the company then drives the entire corporate language and rewards system around those metrics.
Such urgency – and key measurements—helped CVC Asia Pacific and CCMP Capital quickly reinvigorate Singapore Yellow Pages (SYP). The two PE firms led a consortium that purchased SYP from SingTel, the local telecommunications firm, in 2003.
SYP needed the motivation. With an 87 percent market share, the telephone directory publisher had grown complacent, and had seen its revenues slide 40 percent between 1999 and 2003. Advertisers were defecting in droves, as were many demoralized salespeople.
The PE firms revamped advertising sales and tracked its progress by measuring customer retention rates, the amount of upselling, how many times products were cross-sold and new account sign-ups. They also introduced an incentive-heavy compensation scheme that delivered significant rewards to top performers. These steps allowed the firms to lock in a gain of more than 2.6 times their original investment in an initial public offering of SYP shares less than a year after the purchase.
Positing that the current economic slowdown might serve as the impetus for competitive leapfrogging in your own industry, what should you do to accelerate performance?
