Q&A: Performance improvement strategies for long-term value

While implementing performance improvement strategies can provide tremendous financial, operational, and human capital benefits to companies, implementation of improvement doesn’t come without challenges. In this Q&A, Cynthia Romano, Global Director of CohnReznick’s Performance Improvement and Restructuring practice, goes into detail on which phases are most challenging, the benefits possible, and more.

Q. There are a number of benefits that companies can realize by undertaking performance improvement measures. In your experience, what tend to be the most significant/impactful focus areas that typically create the greatest long-term value?

A. There are a number of benefits that come with bringing in a fresh set of eyes to diagnose issues and identify key actions to improve performance. Benefits including revenue growth – which is what many people think is most important – typically occur in phases. In the short term, the most impactful actions are usually focused around supply chain and cost optimization. In fact, almost every company we work with can improve in these areas even when management is certain they’ve made all possible changes. Mid-term improvement actions are often focused on process efficiency, leadership/workforce effectiveness, and technological upgrades to better automate or completely transform how business is done. While significant improvement can be made through cost optimization, cost reduction, supply chain optimization, process re-engineering, organizational redesign, or a systems overhaul, there is a limit to what these measures can achieve. Thus, top line improvement – increasing share of wallet, capturing market share, or infiltrating adjacent markets – is the best way to realize long term value whether done organically or through acquisition provided that the growth initiatives are planned with vision and implemented with precision. 

Q. What do you see as the most challenging phase of a performance improvement initiative? Is it diagnosing the root causes of performance issues, getting buy-in from key stakeholders, executing agreed-upon performance improvement strategies, or all of the above?  

A. By far, the hardest part of a performance improvement initiative, from my perspective, is the implementation of change. Most performance improvement initiatives require people, often a lot of them, to behave differently as individuals and as a group, and that is a difficult thing to achieve. Experience suggests that, in any change initiative, 20% jump on board and adopt it, 30% actively oppose it, and 50% sit on the fence waiting to see which faction wins. Getting the supporting 20% on board as allies and then having them be your lieutenants for converting the middle 50% is a far more productive strategy than focusing on the nay-saying 30% who will either come around or transition out. Change, even good change, is uncomfortable. To move people out of their comfort zone, and to realize the benefits on time and on budget, requires being a mix of therapist, project manager, and drill sergeant.   

Q. How can performance improvement initiatives benefit private equity and their portfolio companies, and why is a focus on performance improvement so important post-acquisition?

A. Every equity fund makes investments premised on the thesis of a calculated return (ROI). Yet, up to 90% fail. That is because most hoped-for ROI assumes the implementation of change to move the business from where it is today to where the fund assumes it could be tomorrow. While some funds do this work themselves, others use a second set of hands as project managers, as interim managers, or, in advance, as a pulse check to ensure the thesis is grounded in what is achievable, and that the migration from here to there is on time and on budget is successful. Pre-acquisition, we can help check assumptions and plan for integration. Post-acquisition, we can help ensure things are moving forward as planned in the areas of top line growth, cost optimization, leadership/workforce effectiveness, and acquisitive integration and expansion. There is nothing more satisfying than seeing an investment yield more dividends than expected and, time after time, we help ensure our clients are in the 10% who succeed.