Wednesday, October 1, 2014

Koliso News: Does Your Leadership Team Question Your Investment In People?

In the last few years Genevieve and I have worked with a number of clients involved in buying and selling businesses. Let us tell you, business investors don’t buy companies … they buy good business assets and excellent management teams. A key theme in buying businesses is using people skills to leverage financial and physical resources.

People plans are critical. We’ve developed a checklist of seven ways to demonstrate the value of an organization’s people plans. 

Cash flow, return on net or gross investment, net present value: there are many ways to put a financial measure on the value of a business. Like most owners, we know their business is worth more than just the value of the assets alone.

We tell our clients, “The soft stuff is the hard stuff.”

Do bottom-line driven lawyers, investment analysts and merchant bankers think the same way we do? It turns out the answer is “yes”.

It is the management team that leverages good assets and makes them great. The people stuff is the stuff that makes the other stuff work.

We work with attorneys and merchant bankers who specialize in mergers and acquisitions. Here’s what we can share from how business leadership teams are evaluated in mergers and acquisitions. This is what people plans should be achieving and these top seven tips apply to every management team: 

1. Build your team for what you need in five years, not just what you need today. If you have a good organization and you expect it to grow, you need to find people who will want to stay and build the business you want. Don’t fill today’s holes; grow tomorrow’s top performers.

2. Measure everything, and show progress. The saying “nothing succeeds like success” is true. Investors look for teams that know what success looks like and aim for it with clarity and purpose. Measure the few things that make the most difference in the success of the business. This means more than just budgets. Show progress with specific key performance indicators that keep everyone on track and focused.

3. Hit the numbers! Set reasonably ambitious goals and make a habit of exceeding them. Big, audacious goals? Not necessarily. There is good research that shows that high achievers (individuals or teams) don’t set seemingly brave goals and then pull rabbits out of hats. Instead they make continuous improvements by hammering away at the few things that make a difference every day and relying on the equivalent of compound interest to turn their efforts into gold.

4. If you fail, at least earn the failure dividend. What is the failure dividend? If you miss your targets, you’ve already paid the price; don’t pay twice by failing to learn from mistakes. Good management teams methodically review failures so they know better for next time.

Here are three additional tips that apply specifically to teams that might end up as part of a merger, venture or acquisition but which you can adapt for any team:

5. Have a good advisory board with good governance. An investor likes to know that the performance they see will reasonably continue into the future. A good advisory board not only brings in outside thinking, it also provides a structure for decision-making and continuity for the future.

6. Make sure the key performers have some skin in the game. Someone who is investing time and money to make an M&A or joint venture successful wants to be certain the people crucial to success are just as motivated as they are. Key players need to be engaged by mid- to long-term incentives tied to organization and individual performance.

7. Make sure people are rewarded for building and maintaining successful relationships. When circumstances change it’s important that the key performers have a network of supportive relationships to help them adapt quickly. Encourage staff to make new relationships in the new organization and ensure there are people in place who can handle the changing client relationships with skill and grace.

That’s it—seven key factors to maximize the effect of your people plan on the value of your business. So to demonstrate the value of your investment in people:

  1.        Show your people plan for the future
  2.        Show the metrics that drive the business
  3.        Show how you’re hitting the numbers and making progress
  4.        Show your people are accountable and learn from mistakes
  5.        Show you have good advisors, decision making processes and good governance
  6.        Show how the behavior you’re getting is the behavior you’re rewarding
  7.        Show the network of supportive relationships that build and maintain your success

Click here if you’d like our discussion paper and a checklist for your next people plan discussion. 

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