4G Management Due Diligence Linking Behaviour to Bottom Line Performance
Management Due Diligence Four Groups has developed a new model for understanding and predicting relationships and team dynamics called 4G. One of the areas of application for 4G is management due diligence and ongoing portfolio management within the private equity industry. The Problem
With the focus on gathering informa-
small change in team composition can
tion on key individuals, these methods
significantly change the dynamics and
There have been a number of studies
fail to quantify other key intangible fac-
effectiveness of a management team.
that have pinpointed quality of the
tors such as the quality of relationship
senior management team as the most
and communication within the man-
The key variables, when looking at
important variable in the relative or
agement team, the quality of relation-
relationships that impact team per-
success of a private equity investment1. Arguably the effectiveness of
ships and communication with the GP
formance include;
the management team is even more
i.e. does the management team have a
• Relationships with investors
important in current times. However,
suitable cultural outlook to execute the
• Performance under stress
despite the maturity of the private
required strategy.
• Internal relationships and dynamics
and the cultural suitability to the task
equity industry in the UK, General
• Cultural suitability to the proposed
Partners (GPs) are still relying on insuf-
Assessing the strength of the manage-
ficient or incomplete data and gut feel-
ment team is a notoriously imprecise
strategy
ing to make a decision to back a partic-
and time-consuming task. This is exac-
4G supports the existing management
ular management team.
erbated by the unique variables and
assessment and due diligence process
complexities of each transaction mean-
by providing systematic information in
Quality of management refers not just
ing that there is no simple formula for
these key areas. By understanding the
to the abilities or experience of team
success. Indeed, a team that may have
underlying relationships within the
members but to the team’s ability to
performed well in the past may strug-
management team, 4G makes it is pos-
effectively collaborate and work
gle given new strategies or priorities.
sible to take more informed decisions
together. For private equity, GPs need
Likewise, assembling a team of highly
based around traditionally intangible
to know the potential and quality of
capable and experienced ‘stars’ is also
variables. 4G also provides information
team dynamics prior to investing.
no guarantee of success. Even with
regarding any likely areas of tension or
highly talented individuals, without
interpersonal conflict and abilities to
Underlying this is the fact that existing
positive relationship dynamics, the
function under stress. By informing any
methods of conducting management
results could be less than the sum of
potential problems, steps can taken to
due diligence such as rigorous refer-
the parts. There is further complexity
mitigate
ence checking, aptitude testing and
when one takes into account the evolv-
before any difficulties or problems
dissecting past performance are notori-
ing relationship between the manage-
emerge.
ously poor indicators of future success.
ment team and the GPs. In short, a
against
these
outcomes
Management Due Diligence
Pre Deal
4G helps accelerate the process of onboarding and understanding the inter-
4G sheds light on the following issues;
nal dynamics of the board room, meaning that relationships become produc-
• Understand the cohesiveness of key
tive quicker than would normally be
relationships within the executive team
the case.
• Underlying relationship strengths and weaknesses
The Process
• How to improve existing relationships • Underlying cultural attitudes and suit-
4G can be deployed very quickly,
ability to particular strategies
requiring an hour or so to complete an
• Understanding the likely implications
online questionnaire. This is then fol-
of any culture or strategy change
lowed up with a 30 minute feedback
• A team’s ability to adapt and be flexi-
session to confirm the results. Given
ble
the time constraints in such situations,
• Likely causes of stress or tension with-
Four Groups would aim to deliver
in the team
results within 48 hours of the first briefing.
Post Deal Reports are delivered in hard copy and Once a deal has been completed, 4G
clients are also able to take advantage
can also be used to help develop and
of the 4G Visual Team Builder software
optimise the ongoing relationship
that allows for the dynamic modelling
between GP and the management
of relationships and interactions within
team. Particularly during times of stress
the team, enabling GPs to answer
or change, this relationship is likely to
“what if” questions prior to taking any
come under pressure. 4G provides the
action.
explicit insight and strategies on how best to manage these key relationships. Furthermore, in situations where the GP is able to appoint a Non-Executive Director to the board, 4G can provide key information on the likely impact of any candidates on existing team members. Once a decision has been made,
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Management Due Diligence
Footnotes 1. Two relevant studies can be found at the links below http://fourgroups.com/link/?84 http://fourgroups.com/link/?85
About Four Groups Four Groups has developed a new approach called 4G to understanding behaviour, relationships and culture. 4G provides its users with insight into personal characteristics, how relationships develop within teams and groups and how culture can be best defined and managed. 4G provides organisations with information on how best to deploy and optimise the performance of their people. It also enables preventative measures to be taken which prevent the more negative aspects of interaction and group dynamics such as minimising personal friction and reducing misunderstanding between colleagues. 4G represents a systematic approach to managing previously intangible aspects of organisational life. The methodology is easily replicable and can be implemented quickly and efficiently.