Bringing organizational culture and leadership to the bottom line Quickly producing results to improve business performance is essential to private equity (PE) firms. If they fail to take a deeper look at culture—within their portfolio companies, their acquisition targets, or within their own firms—they are putting themselves at a serious disadvantage. As the world’s leading authority on organizational culture and its impact on performance, Denison offers the highest quality professional guidance and expertise for building synergies between culture and success. Why Culture Matters to PE Firms Organizational culture refers to the collective norms, values, underlying assumptions and mindsets of an organization. Over the last 25 years, our research has proven that organizational culture will impact a company’s internal dynamics and processes, as well as key performance indicators, including: EBIDTA, ROI, sales growth, customer and employee satisfaction, along with many others. In today’s hyper-competitive business environment, a growing number of PE firms are now recognizing the impact corporate culture can have on performance, and are beginning to track and manage culture as they would their EBIDTA or revenue figures. By discovering how to leverage cultural assessments during the evaluation of target firms, in portfolio management, and within their own corporate culture, PE firms are strengthening their financial performance, competitiveness and ultimately maximizing the terminal value of their investments. How We Help PE Firms Select & Integrate Acquisitions Recent studies are confirming what PE firms have known for some time – that human and social capital are important drivers of financial results. With a strong understanding of these capital assets, PE firms can make better investment and management decisions. Denison helps forward-thinking PE firms create synergy between culture and success through our expertise in: Post-Acquisition Culture Development—Align culture to business strategy and support management teams by creating common objectives, communication styles, and expectations. We’ll support you through the process of creating a single, high-performance culture in order to best position the combined organization for longterm success. A few examples of ways that we can achieve this is by helping you address:  Where there is a disconnect between those who design strategy and those who are expected to execute it  Whether employees, teams and business units are coordinating their efforts to maximize organizational impact  The existence of subcultures that might be barriers to execution  Whether employees believe they (and their colleagues) have the skills and resources needed to execute Culture Portfolio Management—Standardize your cultural measures and metrics to enable benchmarking (identify top and bottom performers), best practices research (isolate actions/interventions that are creating the biggest impact), linkage analysis (assess the relationship between culture and key performance metrics), and resource sharing (educational sessions, communication tools, best practices transfer) across your portfolio to maximize your culture development ROI. Transformation and Turnaround—Develop and execute turnaround strategies with clarity and speed—getting your business back on track as soon as possible. By working with you to develop strong, focused leadership and a workforce that’s aligned around a clear roadmap for the future, we can help you achieve economic viability and a sustainable culture that continuously adds value to your organization. Our approach to driving organizational turnaround and transformation focuses on several key activities:  Assessment: Assess the current reality by reaching out to internal and external stakeholders—this will provide a broad and deep perspective of the business situation. Ask questions and listen.  Buy-in: Generate support for a shared vision for the future, including achievable goals and a rational timeframe by facilitating informed discussion with input and dialogue from key stakeholders.  Involvement: Expand the conversation in a thoughtful and logical way to involve larger groups in the strategic planning sessions. Engage key players, communicate the vision and benefits, and create clear accountabilities and contingencies.  Execution: Implementing the turnaround strategy requires constant communication and follow-up. We provide the necessary tools to help leaders anticipate and manage through the ‘dip’ as fatigue sets in. Some of Our Private Equity Clients Research Insights We’ve helped some of the world’s leading PE firms better understand and develop their portfolio companies’ cultures and achieve great results. Through our ongoing work with client organizations, our experience and research studies suggest several benefits that can be realized by PE firms that focus on culture: The linkage between corporate culture and financial performance is significant. A multi-year analysis of approximately 100 portfolio companies showed that those with higher scores on the Denison Organizational Culture Survey (DOCS) also experienced higher EBITDA growth and sales growth.  Culture predicts the difference in EBITDA growth along with the difference in sales growth.  Portfolio companies with top scores in organizational culture experienced an average of 10% more EBITDA growth.  Culture improves significantly for portfolio companies that pay attention to it. Case Studies Managing culture to produce results quickly in private equity firms We’ve successfully worked with a number of private equity companies with capital, under management, ranging from $1 billion to $10 billion. Each was focused on how best to leverage smart, lucrative decisions in a timely fashion. The speed and success of acquisition integration is critical. With an urgency to produce results, these PE firms knew that a focus on their portfolio companies’ cultures was the quickest way to accelerate performance. To achieve superior results quickly, the firms deployed Denison’s Organizational Culture Survey (DOCS) shortly after acquisition. This provided a baseline for measuring culture development, and at regular intervals thereafter to assess the impact of the action-planning work that Denison helped to support. After analyzing the results of approximately 100 portfolio companies owned by multiple private equity firms, statistical linkage analysis across multiple years confirmed that the portfolio companies with the highest culture scores saw both revenue and EBITDA grow significantly more than those portfolio companies with the lower culture scores, as indicated in the diagram at the right. If PE firms want to deliver higher revenue and profit growth, investing in culture development strategies will get them there quicker and with a higher return. Avg. EBITDA Growth Avg. Sales Growth 7% 17% -3% 5% Post-diagnosis, action planning & intervention can change the culture quickly A company with over $800 million in annual revenue was acquired by a new PE firm, one that ran it much differently than the prior PE firm owner. The sudden change brought with it upheaval, uncertainty and turmoil, as the company was being pulled in many different directions in a short time period. There was a revolving door of employees, and in just 12 months, the company had four different CFO’s. The fourth CFO was committed to turning around the company quickly, and with his experience, he knew that one of his primary responsibilities was to manage cash flow. In order to achieve this, the company would advocate action planning around necessary changes to the company’s culture. The first step was for the staff to take the Denison Organizational Culture Survey (DOCS). The CFO then gave ownership to the staff over forming their own teams to create action plans based on the results for which they would be held accountable. On a monthly basis, each team would check in with the CFO and present the progress they had made on their project plans. This strong focus on culture changed things quickly! In just 12 months, the company’s cash-flow increased from $8 million to $46 million, a $37 million increase! Culture scores were also greatly improved over all of the indexes of the circumplex, especially in the Involvement and Consistency indexes. If PE firms want to manage cash flow effectively and produce quick results, focusing on culture development and empowering staff to take ownership for creating action plans, based on their own survey results, is a great way to achieve this. “The Denison tool laid the framework for us to build an effective action planning process, one that ultimately led us to increase our cash flow quickly and efficiently.” - Chief Financial Officer Conclusion Private equity have a strong history of successfully improving and driving the performance of their portfolio companies. A growing number of firms are recognizing that developing high-performance cultures and leadership teams is the key to unlocking superior business results, and is a sustainable source of competitive advantage.