Combating the Factors That Too Often Derail Strategy Execution with Technology
To most, the term “strategy execution” probably seems straightforward and unambiguous. But in the private equity world, how the value creation strategy is executed can vary dramatically from one sponsor to the next.
In recent years, PE firms have created proprietary processes and distinct approaches to strategy execution as a means of differentiating themselves in a competitive deal and fundraising environment. We all know that valuation is always the primary driver of a deal close. But attractive and savvy (target) companies also want to know how the sponsor will help them drive operational alpha and accelerate value realization as quickly as possible once the deal has closed. With current economic conditions creating greater obstacles to growth, and financial engineering and buy-and-hold strategies no longer viable options on their own for creating value, strategy execution and operational excellence have only grown in importance.
Unfortunately, strategy execution doesn’t have the best track record. Success has been proven quite difficult to achieve both within and outside the PE environment. According to David Norton and Robert Kaplan, authors of The Balanced Scorecard, 90 percent of organizations fail to execute their strategies successfully. Harvard Business Review found that 60–90% of strategic plans never even get off the ground due, in large part, to execution. McKinsey studies have found that 70 percent of any change initiatives fail to meet their goals.
The drivers of failure are common and well documented. Too often, the plan is not understood by those who need to execute and implement it, and therefore cannot be followed. Plan creators fail to clearly establish ownership of initiatives at the outset, leading to an absence of accountability. Other factors include a lack of alignment between teams, failure to establish measurement processes and standards, and absence of any reinforcement. And there is almost always a connection between execution failures and a lack of solid communication and collaboration.
Any one of these factors alone can thwart the implementation of the plan, delaying the creation of value and causing confusion and uncertainty. Any combination can be a death knell for strategy execution, leading to wasted time, frustrated stakeholders, and a cautionary tale of an investment that failed to reach its full potential.
There is no magic potion to cure all that ails strategy execution. But technology has a critical role to play in mitigating and potentially reversing at least some of the factors that often befall strategy execution efforts.
Today, a range of new tools and solutions designed exclusively to support strategy execution and value creation can be integrated into any sponsor’s unique and individualized approach. These platforms establish alignment among all stakeholders from day one, ensure responsibilities are understood up and down the chain, establish measurement thresholds, enable KPI tracking, capture and repeat successful initiatives, and drive accountability on both the portfolio company and sponsor sides. The ability to monitor the progress and status of activities in real time, made easier and possible by technology, allows investors and partners to see across all portfolio activity to spot any red flags or opportunities to pivot.
And with today’s new solutions built specifically to support strategy execution in PE, sponsors are no longer challenged with attempting to make generic workflow tools work for their day-to-day operations or stretching the use of existing applications beyond their intended purpose.
For sponsors, strategy execution is the “secret sauce” and the “Intel Inside” combined into one, where firms leverage their unique skillsets, capabilities, and approaches. While each have their own wrinkles to driving strategy, technology must be at the forefront to ensure efforts aren’t relegated to the litany of strategy execution failures.