Don’t believe the hype
A few myths about moving into private equity refuse to die. One of the most stubborn is that an effective way for a new executive to make their presence felt is simply to dial up the focus and intensity levels.
It’s not, warns Wouter Hut, CPO at Ahlstrom-Munksjö. In his experience this approach can fatally undermine a transition to PE: “Some executives come into PE wedded to operating exactly as they did in their previous role; they just think they have to do it faster and tougher,” says Hut. “They have to let that go, because this environment calls for people with an open mindset, flexibility and a never-ending desire to learn and grow.”
A linked misapprehension about PE is that aggression is an acceptable substitute for determination. In an industry where individual funds may have multiple stakeholders, the collaborative skills of the CPO are crucial; more so as CPOs new to PE may be grappling with intense new levels of autonomy. As Jon Higginson, an operations advisor for Advent, puts it: “Procurement isn’t just about driving, it’s about influencing ”
Be ready for accelerated change management
First-time private equity CPOs are likely to be handed far shorter timelines than they are used to, while being expected to effect more ambitious transformations. “The private equity CPO won’t have the kind of time that, say, a stock listed company CPO has to steer costs, to take change management decisions to the board,” notes Tansu Kirimli, CPO at Swissport International (SVPGlobal & TowerBrook). “But that’s a positive – the decision-making cycle is shorter.”
Faster decisions mean rapid changes for those who define and work out the process. CPOs fresh to private equity have to be agile enough to accelerate profound overhauls and to overcome sudden challenges. “Show very quickly that you can deliver,” advises Xavier Cassignol, CPO at IDEMIA (Advent and Oberthur Technologies/Morpho). “The success story is important, especially at the beginning.”
For Thierry Minel, CPO at GKN Automotive, being handed comprehensive ownership of his mission marked an intense personal adjustment. “That was the big difference from a corporate,” he recalls. “You’re given the keys to drive the business, and the freedom to drive it as you see fit.” At first, the magnitude of that degree of freedom was intimidating, “but as soon as I realised exactly what I could do, that acceptance that it was up to me to drive the show — it was super-exciting.”
One size does not fit all
There is no blanket measure of CPO success that can be transported from one portfolio company to the next: in PE those measures are governed by the expectations of the specific owner. Some funds will be strategy-driven, others more financials-driven; others may value the control and supply side of the value chain more than sales, or vice versa. Deal configurations must be incorporated, alongside factoring in the developmental stages at the various entered companies.
“It can be difficult for people who have never worked for private equity to fully appreciate that each fund has a different DNA,” concedes IDEMIA’s Cassignol. “There’s no one size fits all. If your company is owned by one of the bigger funds, as CPO you tend to have more interactions, because they have probably developed their own procurement practices. But if you work with medium-size European funds, for example, that would be a different relationship.”
Don’t take increased reporting personally
The complexity that governs PE activity, married to stringent timelines, means that private equity owners sometimes require a significant amount of reporting, advises Oscar Rego, CPO at TK Elevator. “This can overwhelm teams and make them feel as if they’re being audited or supervised. It is important to raise their awareness that the shareholders are true facilitators and the initial reporting “burden” is intended to build trust and transparency, thus paving the path to expedite their sponsorship on the transformation and value creation roadmap.”
The CPO new to PE may well feel the same unless they clarify the context early on, and have the information ready to pass on to their teams. Our CPO discussions revealed that this kind of oversight tends to sit on a continuum of constructive collaboration, an approach that some executives are less familiar with.
Look afresh at how to create value
Our discussion partners tended to agree that procurement in PE is more likely to be viewed as a core enabler of value creation than in the larger public companies. CPOs coming into private equity must pivot swiftly to an understanding that, in PE, procurement is perceived — and designed — to be a vital component of strategy, rather than simply as a function that has an impact on P&L.
This presents huge opportunities for skilled CPOs making the transition into PE, but they must also be clear that, if procurement doesn’t perform, the value creation case will fail. “PE has a very clear understanding on how to create value and if uncomfortable decisions have to be taken, they will take them,” says Kirimli. Procurement specialists must be unafraid to engage here, bringing the commercial skill to analyse how procurement decisions will impact the overall business strategy far beyond any early savings phase.
Asking for help is a capability, not a drawback
The previous point could be intimidating, which is why executives stepping into private equity must bring a healthy mindset for learning and change — and remember that asking for help is viewed as a positive. “This is one of the aspects that requires the most adjustment for a first-timer,” says Ahlstrom-Munksjö’s Hut. “Not everybody has this capability, but it is key.”
CPOs may also encounter a markedly less political environment than the one they have come from, with problems treated as common responsibilities: “In some corporate cultures, highlighting issues in other areas is almost frowned upon,” says Hut. “In PE, the approach is if there’s a problem, the company needs to fix it and you work together to do that.” In this respect, some executives will face a steeper learning curve than others.
Your levels of contacts will expand
During their first PE experience, many CPOs will find that barriers between areas are much lower than in some large corporates, where functional boundaries are more pronounced. Incoming CPOs must be open to inputs from new discussion partners, be that working with sales on, say, defining how tenders are run or collaborating on key account management plans on the supplier side.
“That’s the nice thing: you don’t only discuss with peers, you also discuss how to implement procurement plans with others in the business, on the shopfloor; you get to involve the supplier,” says Swissport International’s Tansu Kirimli.
Content, not form
Finally, one member of our private equity group shared a memory of a simple but effective adjustment that they made early in their PE career: “In the blue chip companies we used to work nights pouring energy into creating fancy PowerPoints, trying to impress the board, the executive team. In PE I found that presentations were very lean, very simple — conveying the message was enough, and the hours saved were put to far better use. That was a lesson I had to learn.”