The right organisational effectiveness consultant for private equity

28 June 2023 Consultancy.uk 3 min. read
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Consultants are popular allies of private equity funds, not only pre‐deal during due diligence, but also post‐deal to bring in specific expertise or manpower to accelerate performance improvements. Yet hiring the right organisational consultant is easier said than done, writes Andros Payne, managing partner at Humatica.

In general, private equity has a rigorous vetting approach to hire specialist consultants for clearly scoped projects. To get hired, a consultant must first get approval from the fund, and then by the management.

The hurdles are high. Many mid‐market buy‐out managers have not previously used consultants, or if they did, they were one‐man‐shows, often without international experience. The price tag for these managers can be too high.

The right organisational effectiveness consultant for private equity

Further, unlike most corporates, with consulting budgets, the cash‐based management approach of private equity funds does not leave much for consulting projects. If so, every project needs to be justified on its cash‐flow return. It’s a tough environment for consultants working with private equity, but invigorating.

Nevertheless, we often see mistakes being made with regard to the selection of the proper consultant for the work to be done – in particular with regard to organisational topics.

On the one hand, the big international blue‐chip consulting firms deliver deep industry experience, market and strategy competence, and the pedigree needed to convince debt providers to finance a deal. They play a key role. However, their internal structures and management processes make their consultants completely unsuitable for addressing organisational aspects, where real‐world leadership experience is essential.

Often, executive search firms will be hired to go beyond the search remit and consult on organisational structure and culture topics. This also brings‐up challenges. They have an inherent conflict of interest toward their core business of search, selection and placement. At a minimum, this rightfully brings into question recommendations which have an impact on leadership and specific leaders.

There is also a large number of soft factors, culture and coaching consultants active in private equity. With their backgrounds in psychology and social sciences, they serve an essential purpose in helping to nudge the behaviours of leaders. But, they often lack a deep understanding of the mechanics of strategy, business processes and value growth.

Each of these established consulting disciplines is a valuable specialisation. However, none of them brings the holistic understanding of management processes that is needed to drive organisational effectiveness. It’s for this reason that many organisational effectiveness projects, like designing and implementing a new operating model or organisational structure, often fail to deliver the desired results.

The right answer is to select a consultant that has deep, line management transformation expertise, combined with blue‐chip strategy experience, and which has a deep appreciation for the soft factors, but is unencumbered by any potential conflicts‐of interest. Only then, will the private equity client and portfolio management get the needed objectivity and credibility to accelerate organisational change.