Dan Courser, CEO of Predictive Synergistic Systems
The onus on PE firms
Private equity (PE) firms wear many hats for their portfolio companies: they’re part financial analyst, recruiter/hirer, group counselor, marketer, and predictor of the future. Doing any one of these things well is a skill in and of itself, doing them all well is seemingly impossible. Business analytics help PE firms successfully execute in each of these areas, as well as identify the right portfolio management teams so that each hat has a head to wear it.
Out of all of the roles PE teams are responsible for, perhaps one of the most critical is that of recruiter/hirer – identifying and hiring the “right” CEOs and CFOs to set a new course for financial growth and success. It typically takes six months to recruit for the C-suite roles and then another 12 months before it’s evident if the CEO and CFO are the right fits for the jobs. If they make the wrong selection, they’re almost halfway into their exit timeline and are faced with having to change the management team. They simply can’t afford to get it wrong.
In addition to the CEO and CFO roles, PE firms also have to identify what the ideal management team should look like, who they have in terms of talent, and what’s missing. Many executives are guilty of the “halo effect” – hiring people who are exactly like them – because that’s comfortable and familiar. But adding more like-minded people is not always what’s best for the business. The homogeny of thought can create gaps that impact performance.
Business analytics to the rescue
Business analytics, facilitated through such solutions as the Predictive Index® behavioral assessment and the PRO, or Performance Requirement Options ™, job analytics tool, help PE firms identify the right people for each role based on where the company is in their lifecycle. Depending on the timing of the investment, companies may need leadership with more “brake” or more “gas pedal.” The data revealed through business analytics can help identify which way to drive.
The same holds true for filling the same role at one company vs. another. For example, the CFO position with a finance department of only four people is very different than one with 30 people, with the former needing more hands-on effort in the day-to-day finance activities and the latter requiring a higher level of strategic skills and delegation. Identifying specific job requirements is a critical component for supporting long-term success.
In addition to being instrumental in assembling the best leadership team at portfolio companies, business analytics can also be used within PE firms. Just as with the executive team at portfolio companies, the portfolio management team’s success depends largely on the mix of people on the team. The behaviors of fund managers and resulting team dynamics can have a direct impact on the success of the fund performance.
Join me on Wednesday, June 17, at SuperReturn 2015 in Boston where I’ll be offering a workshop entitled “Psychometrics: Behavioral Analytics to Reduce Risk.” We will discuss how investors can use “people” analytics to better predict the performance of portfolio company management candidates. To learn more, visit http://www.superreturnus.com.
Dan Courser is the CEO of Predictive Synergistic Systems and a nationally recognized expert in data-driven human capital and talent management. He works with clients to apply the analytics from the Predictive Index to solve complex business problems to achieve top-level results.