Don’t let an “either-or” mindset limit value creation efforts

Leading portcos in uncertain times means investing in people, even during layoffs.

By Dr Matt Brubaker, FMG Leading

Like many organizations contending with 2023’s challenging business environment, private equity-backed companies are making difficult decisions about eliminating jobs. Unfortunately, many are embarking on these efforts with a short-term mindset, often overlooking the opportunity to shore up management teams and develop top performers so that they are positioned to capitalize when economies recover.

Matt Brubaker, FMG Leading

This mode of operation is increasingly proving unwise. Notably, a poll conducted in March 2023 for BDO finds that portcos are understaffed and struggling to fill mission-critical roles. Of those surveyed, 54% of portco CFOs and board members said it would be tough to achieve the investment goals of their private equity owners with their current talent benches.

To best ensure they continue driving value creation, portco leaders should seek to shed an “either-or” mindset in favor of one that allows them to embrace dual realities. This shift will make it easier to recognize the necessity of advancing people-centric investments even amidst reductions in force, provided greenlit initiatives are carefully aligned with big-picture strategies and intentionally designed to accelerate value creation.

Fully understand your value creation levers before cutting ranks

Traditional business paradigms can make it challenging for portco leaders to let go of the “quick-draw, quick fix” mentality, especially in times of uncertainty. With missed targets, management often feels compelled to signal to their boards that they’re embracing frugality with appropriate urgency, leaning on such time-honored approaches as enterprise-wide job cuts and hiring freezes.

Unfortunately, many companies proceed with these sweeping reactionary tactics without sufficiently determining where value is created in their organizations. They can thus inadvertently add additional headwinds to their enterprises, making it that much more challenging for companies to compete and scale.

Well in advance of layoffs, portco leaders should deeply assess the entirety of their value streams and identify the key players driving value all throughout their organizations. Seasons of slow growth are, in fact, ideal times to conduct such exercises as stronger environments make it challenging to differentiate moderate versus highest level performers.

In addition, leaders should keep an open mind to the possibility that their most valuable team members may reside in unexpected places. While management may assume its superstars work amongst the companies’ top corporate ranks, there are often teams well beyond the C-suite creating disproportionate value without sufficient recognition. This is especially true among multi-site healthcare services companies, where the quality of site managers can have a direct impact on performance metrics.

Identifying these crucial, high-value team members will allow portco leaders to identify “do not touch” areas, preserving the individuals, dynamics and relationships that have allowed these teams to succeed, even as they eliminate positions in other parts of the enterprise.

Further develop and retain identified top performers

While today’s economic conditions have made it challenging for businesses across industries to hit their targets, the overall labor market remains quite strong. This is especially true in the healthcare sector, which is attracting significant private equity investment. Here, a dire shortage of clinical professionals has contributed to higher costs and major declines in business performance.

With this dichotomy, portco leaders don’t have the luxury of de-prioritizing employee retention efforts, even if they need to conduct layoffs. Rather, they need to invest in the professional development of their carefully identified, top performing individuals and teams, further bolstering their capabilities, capacity and alignment with organizations’ mission and strategy.

Of course, this can pose a challenge in the minds of executives, who worry about the optics of greenlighting programs for certain employees while letting others go. In such instances, it’s often necessary to engage sophisticated, professional communications experts, who can help management compose strategic narratives that clearly but delicately convey the rationale behind difficult, seemingly contradictory corporate actions.

There is nothing simple or easy about navigating the tension that comes with balancing both efficiency and talent development. However, wise counsel, thoughtful assessments and careful investments can help smooth this road for portco leaders, helping them keep value creation as their North Star even amidst uncertainty, pressure and distraction.

Dr Matt Brubaker is CEO of FMG Leading. A frequent adviser to private equity firms, he also serves as an operating partner at Windrose Health Investors.