June 21, 2021
Private equity firms are, according to Bloomberg, set to unload record amounts of unspent investor money while also coming to market to raise new funds. This is clearly good news after a chequered 15 months.
Yet while the economic headwinds of Covid-19 may be behind us for the most part, we know that ongoing risk assessments and hedging strategies are an evergreen feature of the boardroom. Indeed, our work is focussed on making sure that a leadership team as a whole is fit for the future and will be resilient to any challenges that may occur along the way.
One of the ways leadership teams inadvertently undermine their long-term resilience is when they seek to only evaluate how they can create a leadership team that’s greater than the sum of its parts. This analysis is typically rooted in the immediate requirements of the business – and herein lies the tension.
The business will have a value creation plan but it will require change over time. Therefore, focussing on the current leadership requirements at the expense of what will be required in the future is, at best, sub optimal. We call this leadership lag. It’s the idea that leadership teams are too often built to deliver for the here and now.
In the scenario of a founder-led business this can be particularly acute because the challenge is how to successfully disrupt from within and then transform a core group of senior stakeholders into a mature leadership team that can create value sustainably.
Fundamental to addressing leadership lag, according to our analysis, is by engineering leadership balance (see below: Functional Balance UQ) across the team. This provides a sustainable platform from which to deliver the value creation plan while also reflecting the objectives and priorities of the business into the future. For decades, organisation design has been seen through the lens of hierarchies. These hierarchies, however, are limiting, and fail to capture the relationship between individuals, their experience, and the focus of the leadership team on delivering value.
This isn’t to say that businesses fail to consider leadership lag. But when – and if – it’s brought through in the analysis, its mostly on an individual basis and not where it needs to be, which is ultimately at the team-dynamic level.
It’s really about setting yourself up with the right level of functional diversity and behavioural complementarity so that within a framework of unpredictable internal and external factors, the leadership team still has the flexibility to execute.
Domain and functional expertise will remain key leadership drivers but alone they are not sufficient to optimise value creation.
Having people within the leadership group who have been through a value creation process and therefore have experience of going through change, is, moreover, the single most important way to head off leadership lag and provide a key point of difference across the growth journey.
Director, Head of drxDATA