Industry Expert, Maine Pointe Founder and CEO, Steven Bowen, talks about private equity challenges and how Maine Pointe helps companies achieve their goals.
Q: In your work with private equity, where are you seeing the most opportunity for growth as firms climb out of the recession?
Companies are typically experiencing growth at a moderate pace. One of the most challenging issues today is companies are unable to be as responsive and agile to demand as they should be. What most companies do is to build inventory or excess capability to try to meet current demand or unexpected demand, but they end up building the wrong item at the wrong time. A company finds itself with excess product in inventory or excess capability, leading them to build even more product because they built the wrong item at the wrong time—that’s what I call double indemnity.
The opportunity from a demand driven value network (DDVN) perspective is to look at the supply chain from end to end—from the customer through the supplier’s supplier—and figure out how to better sense true demand while shortening lead times… in short, agility!
Looking at the supply chain from this perspective is absolutely critical—and it requires a genetic change within the organization, beginning with the CEO, COO and CFO. It is a shift away from an MRP, build-to-stock mentality that has been around for 30 years. We teach businesses to respond to demand signals across the entire supply so they can respond to those demand signals on a moment’s notice. In my view, that is the number one opportunity that exists in the current marketplace. Not surprisingly, it requires a significant shift in thinking—but this is exactly the kind of approach that a private equity firm should be bringing to the CEO, COO, and CFO.
Q: What is the value of an outsider perspective (versus trying to build the competency in-house) when it comes to solving these challenges?
There are two things that PE groups do extremely well: They bring financial capabilities and strategic horsepower to their portfolio companies. Very often, this includes changes in senior management. In my experience, private equity firms have many opportunities to use consulting expertise to support senior management alongside of or instead of making a change in leadership to achieve the desired results.
Too often, changing leadership or management—no matter how talented or experienced these people may be—does not lead to the expected results because these individuals become a product of their environment very quickly. They are busy running an organization and get drawn into the norms of the business and solving the day-to-day issues—this distracts their attention and prevents them from dealing with root causes. It’s not that they don’t have the mental competence to solve the problems, but before long they are so mired in the details of sustaining the business that they lose their outsider perspective.
This is why consulting can greatly enhance results at an accelerated clip.
Q: What types of missed opportunities do you see most often in your work with private equity firms?
Private equity firms, of course, bring financial knowledge and a well-honed strategy, and most firms will also have strong industry expertise and seek out management with the same. You want to be careful not to allow yourself to be fooled into believing that simply by changing leadership and bringing somebody else in with perceived “deep industry expertise” you are necessarily going to fix the operational issues. What you can end up with is nothing more than what other competitors are already doing in the industry, instead of what’s necessary for true competitive differentiation.
Let me give you an example from our work at Maine Pointe. We went to work with a portfolio company in the metals commodity business area. The commodity requires a depth of industry expertise—both the portfolio company and Maine Pointe had the requisite industry expertise. What Maine Pointe possessed of real value to our client was requisite expertise in other commodities businesses, leading to differentiated views about how to drive improvements. In other words, we were able to look at their total cost of ownership (TCO) in a unique fashion. Our client was able to move this company from buying finished goods to acquiring commitments much earlier in the processing steps of the commodity, dramatically lowering their total cost of ownership while mitigating risk of supply in this particular commodity. This specific strategy has been used by other companies buying different commodities, but it had not been used pervasively in this particular company—a clear example of what “deep industry expertise” can miss.