PE firms must deploy ITIL v3 in their portfolio companies

Recently, an article of mine was published on thinkingstreet.com here.


ITIL v3’s business service management approach makes it the best fit for adoption by private equity (PE) firm for deploying in their portfolio companies in order to enhance the value of their portfolio.

The prime objective of a PE firm is to obtain controlling interest in a target company and restructure the target company over a period of 3-7 years such that its value enhances and sell it once the market value is more. It can be reasonably concluded that the value of the PE firms is a function of value of their portfolio companies.

This objective is achieved by deploying best management practices and cutting on flab in the operations of the target company. Usually, in a PE firm, a partnership’s investment activities can be divided into four stages: selecting investments, structuring investments, monitoring investments, and exiting investments .

ITIL v3 fits well at the stages of structuring investments and monitoring investments. The PE firms can leverage the best practices in the only written IT Operations’ guide. The beginning of a v3 project is resource intensive. However, it starts yielding benefits within 6-12 quarters depending on how it was deployed.

The prime reason that v3 is a good fit for PE is due to its business service management approach for the IT services. Besides, v3 introduces the much needed dimension of Financial Management and portfolio approach, a dimension that was missing from the earlier versions but was of high significance. The address to value creation, value capture, and value networks makes it well-aligned with the objectives of the PE firm.

The concept of market spaces discussed in V3 helps the IT department think beyond the immediate internal customer. If the IT arm of a particular portfolio company can start providing services to external customers, the value of the portfolio company will be enhanced.

Also, V3 adopts a lifecycle approach, which is pragmatic as compared to the earlier modular approach, which discounted the fact that the business place is constantly evolving and that IT needs to adapt. When a portfolio company is being restructured by a PE firm, there are significant changes, which can be addressed on the IT side only by a lifecycle approach.

On one hand, most of the IT shops find V3 abstruse and hence, either delay the adoption and/or are too busy putting out fires in order to adopt it. V3 will act as a shaman between those who worlds. The resistance is easier to overcome in case of a PE portfolio company than in case of a regular company. The structuring of the organization is in such a way that the partners can exert significant pressure to get initiatives off the ground quickly. Besides, the managers of the portfolio companies must not oppose the adoption of v3 in these environments as they gain an experience, which sells for a higher rate in the market, if they can prove a successful deployment.

If I were a stakeholder in the third version (popularly known as v3), I would pitch it to the PE firms, in order to have increased adoption for my Operations’ guide.

booz allen to break up !

Check out this news here.
BAH to break up and have its consultancy services separate ! BAH generates about USD 4bn a year revenue. Given this, the firm's conservative valuations will be easily in the ball park of USD 50 bn+. The partners will have a ball in case this deal goes through.

I am trying to gauge what will Carlyle gain if they get control of these assets (which in absolute terms are - NONE! - most of the assets are intangibles). The people may or may not stick out with BAH - given the turmoil that BAH consulting will undergo with new paymasters in form of Carlyle. Also, as partnership targets of sr managers and managers will get hazed out - there may be a certain degree of attrition to face.

Having said that, Carlyle can deploy the staff and the managers in private equity related work. Their existing assets can be used for it. However, what impact they can bring is a suspect as 70% of BAH's consulting division works for the government and the dynamics in that sphere are much different than commercial sector (critical success factors are more political than merit-based).

I am not sure if this will affect BAH Consulting's ability to attract good talent from b-schools !? Time will tell...

Citi needs service management !

I had blogged earlier about Citi slashing IT jobs here. With the latest news about Citi planning to reduce the workforce by upto 45,000 employees, I have come to a realization that the company needs a re-alignment. I am not for the cause of re-org by breaking up the firm into pieces. What they have right now is a giant behemoth which no one would be able to grapple around. Even Reuben, a man who handled the asian currency crisis, denied to take up the responsibilities after Chuck Prince quit. To realize the synergies from their earlier mergers, Citi needs operations' experts in place.

Operations experts, huh? Then hire management consultants... outsiders, objective, etc etc...
The reality is - Citi is a listed company and consultants get chopped off when the cost constraints hover on the head of the middle managers. Consultants charge huge rates. Instead, Citi can directly buy this talent from the market as they need on-going success and not a one-time remedy. So, what qualities they need in their operations-experts?

Last week, the Wall Street Journal had this article on how "tough" bosses were the most successful bosses at private equity backed firms:

"We found that hard skills, which are all about getting things done, were paramount," says lead author Steven Kaplan, a professor of finance and entrepreneurship. "Soft skills centering on teamwork weren’t as pivotal. That was a bit of a surprise to us."…

Mark Gallogly, a co-founder of Centerbridge Partners, a New York private-equity firm, says the academics’ findings match many of his beliefs about what’s important in a CEO. He puts a premium on bosses who can hire well, excel at efficiency and execution, and can be aggressive but respectful. By contrast, public-company CEOs may need more soft skills to manage relations with wide shareholder bases and other diverse constituencies."

The academics found that these five traits were the most important to success…

1. Persistence
2. Attention to detail
3. Efficiency
4. Analytical skills
5. Setting high standards

…and these were the least important to success…

1. Strong oral communication
2. Teamwork
3. Flexibility/adaptability
4. Enthusiasm
5. Listening skills

My observations suggest these are the qualities that enable the low-cost highly scalable operations of some service providers (read Infosys from India, Neusoft from China, etc) to maintain their high margins vis-a-vis the snobbish consulting firms of the developed nations charging high rates at higher operations costs and lower margins.

Citi's services are mostly commoditized. They need to check out what's mentioned in Service Strategy module of Service Management's latest version 3 - differentiate on the outside and simplification on the inside ! If how's their question then they must start to operate similar to the PE controlled firms.

Citi - you have a long way to go - the results of all this will take atleast a few quarters - provided there is a mindset change amongst the existing employees.