Coaching Through Transition: A Private Equity Backed Company Perspective

www.cruxhouse.co.uk

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COACHING THROUGH TRANSITION A Private Equity Backed Company Perspective

Crux House Limited

Westminster House

10 Westminster Road

Macclesfield

Cheshire

SK10 1BX

T: +44 (0) 844 334 5186

E: [email protected]

http://www.cruxhouse.co.uk/

mailto:[email protected]

COACHING THROUGH TRANSITION WHITE PAPER Author: Mark Francis Date: 12 March 2014 Version: 1.00

1 Crux House Limited www.cruxhouse.co.uk Tel. +44 (0)844 334 5186

Contents 1. Problem Identified .......................................................................................................................... 2

2. Private Equity & Transitional Change ............................................................................................. 2

3. Top 3 Reasons Change Fails ............................................................................................................ 4

4. Transitional Coaching Explained ..................................................................................................... 5

5. Coaching .......................................................................................................................................... 6

6. Four Fundamental Coaching Skills .................................................................................................. 7

6.1. Building a Coaching Relationship ............................................................................................ 7

6.2. Setting Goals ........................................................................................................................... 8

6.3. Asking Effective Questions ...................................................................................................... 8

6.4. Providing Feedback ................................................................................................................. 9

7. Change in PE Backed Companies .................................................................................................. 10

8. Crux House Change Management Coaching ................................................................................. 12

9. About Crux House ......................................................................................................................... 12

10. Contact Crux House................................................................................................................... 13

11. General Terms of Use................................................................................................................ 13

Figures Figure 1 The Change Curve Model. Source: Mastering The Change Curve. Second Edition ............ 4

Figure 2 The Process of Transition. Source: J M Fisher (2003). www.businessballs.com ................. 6

Figure 3 Preparing For Successful Exit. Source: PWC PE Backed Company Survey 2012 ............... 11

Figure 4 Three Year Priorities Growth Importance. Source: www.pwc.co.uk/privateequity ......... 11

Figure 5 Coaching Through Change. Source: Crux House, Francis (2004) ...................................... 12

The UK’s largest Private Equity (PE) portfolio companies have grown capital productivity by 11% a year since acquisition

European Private Equity & Venture Capital Association

"This level of successful PE backed company growth hinges on well executed organisational change"

Mark Francis, CEO & Founder, Crux House

http://www.ey.com/Publication/vwLUAssets/Private_equity_value_creation_in_Europe/$FILE/Myths_and_challenges_FR0089.pdf

http://www.cruxhouse.co.uk/ceo.html



1. Problem Identified It will come as no surprise that innovative, growing and progressive companies undertake change on

a regular and planned basis to improve operational efficiencies and growth. Organisational change

can be classified as incremental or radical (step-change); executed in a planned or reactive way.

More often than not change is reactive in nature and necessary due to evolving external, social,

environmental or competitor factors presenting opportunity or threat. Change frequently works well

when it comes from within and implemented in a planned, structured and considered way

accounting for company resource, time, people and objectives. It's delivered best when it has full

employee engagement, great communication and top-level stakeholder support from key

influencers within the organisation. The magnitude and speed of change will impact how employees

react to it so management of change should be considerate. Employees will react very differently to

change that doesn't move them too far from what they know (incremental) as opposed to dramatic

change ( radical). Radical (turnaround change) is most prevalent in businesses focused on ambitious

growth plans to address specific or critical profitability or growth issues. Change management

requirements in these companies can be unique and specific to the type and level of change

required and MUST be managed accordingly to deliver improved results in a timely manner.

Change is often blocked, stalled or shelved due to employees feeling unsettled or anxious about the

nature and speed of the change and how it might personally affect them and their working

conditions or standing within the company. At this point it's critical to identify change advocates

(internal and external) that can assist with the change and to better understand the nature of

change required to transition to the desired state.

How big is the gap between the future state and the current state?

How different is the future state from the current state?

How much of a departure from the current state is the future state?

"Most companies are keen to make change but lack critical support, momentum and objectivity"

2. Private Equity & Transitional Change Certain businesses such as high net worth entrepreneurs, investors or private equity (PE) firms exist

to make change. They are looking to shape a company or portfolio of companies to increase total

fund returns for their investors. Change for them is often "a way of life" (central to increasing

returns) and must be planned and managed closely to influence growth capital and valuation levels

upon exit. Frequently change must be delivered within a 3 to 5-year period. For this type of change

to be successful employee engagement and their understanding of the change is of paramount

importance so that the change is accepted quickly and moved forward by all employees.



Most progressive PE firms facilitate this by reshaping a company's incumbent leadership team

and/or employ the services of a interim change management partner that intuitively understands

the short-term goals, objectives, strategy and transitional direction of the PE firm in question. These

strategic partners work across or within the PE backed company leadership team reporting to the PE

firm; unconstrained by company politics, corporate history, in-fighting or job protection. A great

springboard and vantage point to introduce change quickly whilst providing stability and focus.

Such interim change partners as CruxHouse often have the knowledge and professional urgency to

manage the complex change needed to raise the worth of a company. The short-term financial goals

and step change needs of C-level, working capital investors and private equity partners can be

demanding and tightly "time bound". For example, strategies to nurture expansion, new product

development, restructuring, buy-and-build, ownership or exit. Often an objective and expert partner

directed to orchestrate change and settle the company provides a solid foundation to change.

"Change is something that continually happens. Effective change depends on planning, control,

measurement and action. Private Equity firms look to shape change; not let change shape them”

Such PE firms rely on partners with operational change, commercial leadership, marketing and

product or service business development skills. They are not simply looking for yet another

accountant perspective on the situation to inform them that top-line or bottom-line revenues are

not growing or the customer base is in decline. They require someone with broad business acumen

and experience who can hit the ground running and start the change process immediately with

credibility, urgency and gravitas to effectively address the questions why, how and when.

With this in mind, business leaders and functional managers are advised to understand how best to

coach employees through the change process and understand how change impacts performance

and commitment levels. This is especially pertinent within PE backed organisations where change

velocity and direction can at times be unsettling and constant.

People need to go through the tender “transition zone” which brims with uncertainty, confusion,

disorientation and discomfort. If transitional stages are not managed efficiently company

performance can be adversely impacted. For example, reduced productivity, increased absenteeism,

dysfunctional teams, stressed managers, unfocused sales teams. Such negative outputs can be

mitigated once the process is better understood and managed in a supportive and engaging manner

through empathy, understanding and "tough love".

In "transitional state" companies being able to deal with such pace of change and the ambiguity

surrounding it is becoming an increasingly important skill set for individuals and managers.





3. Top 3 Reasons Change Fails

Employee resistance

Leadership issues

Communication

These three reasons all stem from a lack of clarity, focus and direction. Employee’s resist change if

they don’t understand the need for the change or the "end goal" to the changed required of them.

Clarity must also be given to the change benefits. Issues generally arise when leaders are unclear

themselves, about the change or unclear in how they communicate change to their teams.

"Communication is the "Holy Grail" of change management and yet often over or under-done"

The above reasons result in a situation in which there is ambiguity about the future and the way

forward which is unsettling and makes it difficult for people to let go of their familiar, often

comfortable past and step into the unknown future.

To help simplify this, most business change models show four transitional phases. Each stage

requires a very different and unique approach to support and coaching techniques. Understanding

and using these techniques during the change can dramatically reduce the time needed for

employees to understand, accept and embrace the change required to deliver an improved company

performance.

Figure 1 The Change Curve Model. Source: Mastering The Change Curve. Second Edition

DANGER OPPORTUNITY

DANGER



4. Transitional Coaching Explained

Encourage people to “try on” the new situation and see it from a different perspective, It

could actually be a good thing

Enable people to explore their feelings about the transition. they have permission to

experience such feelings. they need help to embrace a "time to move on" attitude

Create a focal point for people to aim for. Daily goals are needed to get there

Help people to accept change as “the norm” in organisational life and focus on the benefits

Help people regain a sense of control over the situation by focusing on what they can

personally control rather than what they can’t

“It is not the strongest of the species that survives, nor the most intelligent, but the most responsive to change.”

Charles Darwin

In most instances it isn’t the change process that affects people negatively it is the transitions from a

current (comfortable and well understood) state to a new state. Change is situational, transition is

the psychological process people go through to come to terms with the new situation. Change is

external, transition is internal and this is where an external influence to assist with the transition can

be more accepting. An interim change partner can often help coach people through from anxiety to

acceptance. In turn, people can then move on and start to add positivity and value back in the

business. They themselves will eventually become change advocates and influence others that are

also moving through the change curve.

In most business models the "change process" is depicted as a linear process (for simplicity of

understanding). However, an experienced change partner will fully understand that change is not

linear in reality. for a number of reasons employees (and teams) can and often do transition back or

become stuck at a single point within the change process. Help and support is then required to

actively acknowledge and understand when this is happening and more importantly seek to

determine why this is taking place. A different set of coaching tools and techniques are then

employed to help migrate the employee to the required state.

Most incumbent "internal" managers have limited appreciation or time to help with such activities

and in these instances good people are often lost to the business or absenteeism rates start to

increase dramatically. If such feelings are not managed quickly productivity can often start to suffer.

“For many PE backed companies management team stability or resistance to change is a key risk that

requires motivation, support and coaching”



Figure 2 The Process of Transition. Source: J M Fisher (2003). www.businessballs.com

Argyris (1991) defines resistance as ‘thoughts or actions individuals, groups and organisations

employ to defend their usual way of dealing with reality’. It’s a natural reaction to change, and as

such should not always be viewed in a negative light but be understood and managed accordingly as

part of the acceptance to change. Fear will often result in resistance to change and can deliver:

Performance dips

Emotional outbursts

Disagreeable behaviour

Encouragement of resistance

Lateness/ absenteeism

5. Coaching Coaching encourages and enables people to take responsibility for their own performance and

ongoing development by:

Increasing self-awareness and understanding of their current capabilities and potential

Enhancing and applying appropriate knowledge, skills and competencies

Optimizing, sustaining and further improving their performance



6. Four Fundamental Coaching Skills

Building a coaching relationship

Setting goals

Asking effective questions

Providing feedback

6.1. Building a Coaching Relationship

People who are being coached throughout the transitional phases require a change agent or coach

who:

Has empathy and Listens

Has an open mind and open door

Shows genuine interest in people's development

Is constructive

Believes that people have the answers within

Is happy to help people develop beyond the limits of his/her own knowledge

Is ready to provide feedback

Is willing to help set goals

A coach, change agent or line manager that is lacking in the above skills or who is too busy with

"business as usual" may start to indirectly encourage further resistance and fear against the change

required through their lack of engagement and understanding.



6.2. Setting Goals

Specific, Measurable, Achievable, Relevant, Time-phased, Exciting, wRitten down

Any development plan, agreed goals and timescales to help manage the change should be the

responsibility of the learner but agreed together with the coach. Ownership and personal

management is instrumental in reaching the "acceptance" stage quickly.

6.3. Asking Effective Questions

"Tell me and I forget"

"Ask me and I remember because I understand"

The GROW model:

Goal

What would you like to discuss?

What would you like to achieve?

What would you like to be difference?

Will that be of real value to you?

Reality

What is happening at the moment?

What effect does this have?

What other factors are relevant?

What have you tried so far?

Options

What could you do to change the situation?

What alternatives are there to that approach?

Who might be able to help?

Which options are of interest?

Will

What are the next steps?

When will you take them?

What might get in the way?

What support do you need?



6.4. Providing Feedback

Providing regular and planned feedback to employees during the change transition is an incredibly

effective way to reinforce positive messages and provides a forum to quickly engage with

uncertainty or negative feelings during periods of perceived failure, denial, hostility and depression.

Both individual and team feedback sessions can simply help to reinforce the positive direction or progress that the employee or team may already be taking. Things to consider when providing feedback:

Express your belief in the person

Devote the necessary time

Pick your time

Discuss the matter in private

Look them in the eyes

See the situation from the other persons point of view

Refer to the persons good points and strengths

Praise improvements and change acceptance levels

If you are not getting the response you want, change it

The vast majority of the impact of feedback is from non-verbal communication

Think about:

What you currently provide feedback on

How you currently provide feedback



The level, frequency and quality (accuracy) of information and communication can impact the

change acceptance timeframe dramatically so it is vital that the change agent understands the value

and nature. For example, delayed information can have a negative impact resulting in a state of

cognitive dissonance.

Intrinsic: information which comes from within

Extrinsic: information which comes from the environment

Concurrent: information which arrives during the task and can be used to control it

Delayed: information comes after the task is completed

7. Change in PE Backed Companies In this challenging economic environment most successful companies will adapt flexibly and quickly

in their pursuit of growth opportunities with the support and guidance from their PE backers. PE

backed companies are focused on important change "value drivers" such as the need to reduce

costs, improve margins, introduce new products or widen their service offering (Figure 4). Most PE

owners are open to amending the strategy when required and when they see opportunity growth in

strategic and operational change but do require assistance to make the change stick.

Naturally, there are areas where portfolio companies could improve their operational performance

whilst focusing on improvements to working capital and cash flow management to create value.

When performance issues do arise, PE houses tend to become more involved in the business and

more rigid regarding changes to the agreed strategy. This is where a partnering company like Crux

House could add significant value in helping to drive operational change and growth plans.

The top strategic priorities for most private equity backed companies that require significant change

to be introduced tend to fall within areas such as; growth, staff development, retention, motivation,

broadening service offerings and new products. Of these, growing revenue is by far the most

important, to ensure companies don’t breach loan covenants and for companies with less debt, to

ensure they achieve the returns that the private equity house needs.

Change often centres on preparing a business in readiness to exit. A key phase for many PE backed

companies is the ability to increase the company value and attractiveness prior to exit. Well

managed change programmes are needed to prepare for this stage (Figure 3). For example, a

compelling strategy, robust plans, strong management team, well managed costs, growth in sales,

sound processes and procedures. All change initiatives requiring a focused approach to execute

efficiently.





Figure 3 Preparing For Successful Exit. Source: PWC PE Backed Company Survey 2012

According to PWCs fourth annual survey (Flexibility in uncertain times: Private equity backed

company survey 2013) there are many areas that require careful consideration when introducing

change. For example, PE firm priorities during a change process could focus one specific priority or a

range of interrelated areas that form a larger change programme:

Figure 4 Three Year Priorities Growth Importance. Source: www.pwc.co.uk/privateequity

www.pwc.co.uk/privateequity



Crux House understand the very specific change requirements that favour a PE backed business and

as such are able to hit the ground running when it comes to assisting with change management and

interim management assignments. With this in mind, they developed a methodical approach to

managing change.

8. Crux House Change Management Coaching Figure 5 shows the stages of awareness and performance for a task or job and their appropriate

coaching approaches. In this model coaching may start at any stage.

Figure 5 Coaching Through Change. Source: Crux House, Francis (2004)

9. About Crux House Crux House works in partnership with companies, private equity firms and like minded

entrepreneurs to help enable business transformation. They have an impressive track record of

successfully taking businesses to the next stage of growth by delivering the required support and

expertise to make change and business growth a reality. They recognise the short-term financial

goals and step change needs of C-level, working capital investors and private equity partners who

value their services. They actively participate with growth preferences and priorities. For example,

strategies to nurture expansion, new product development, restructuring or ownership.



10. Contact Crux House A UK Cheshire based company conveniently located close to Manchester International Airport with

direct rail and road links to London and all other major UK cities.

Crux House Limited

Westminster House

10 Westminster Road

Macclesfield

Cheshire

SK10 1BX

E: [email protected]

T: +44 (0) 844 334 5186

W: www.cruxhouse.co.uk

11. General Terms of Use You agree to use the contents of this document only for lawful purposes. You may view, download and print pages for your

own personal use only, subject to the restrictions below.

You must not:

Republish material from this document for republication

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Reproduce, duplicate, copy or otherwise exploit material for a commercial purpose

Redistribute material, except for content specifically and expressly made available for redistribution

Adapt, alter or create a derivative work from any content for a commercial purpose

Any other use requires prior written permission from Crux House

mailto:[email protected]

www.cruxhouse.co.uk

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