Why every private equity firm should read Deming

The best private equity partners strongly support that management must be judged not only by the quarterly dividend, but by innovative plans to stay in business, protect investment, ensure future dividends, and provide more jobs through improved products and services.
It is recognized that Private Equity is about the deal and, although they do leave the people side to the owners running the business, the best PE guys know operations and long term success do not flow from the numbers but from the passion of the people.
Talking about Deming in my past blog, and how much he impacted on my approach to strategy for growth, made me stop by Wikipedia and read about this extraordinary man who was honoured by the Japanese with the Deming Prize.
It took me back to my MBA days to review Deming's extraordinary impact that he made in the late 1980's. His focus on the people, despite being a statistics and measurement boffin, did inspire me to write my first book: "Long-term commitment to new learning and new philosophy is required of any management that seeks transformation. The timid and the fainthearted, and the people that expect quick results, are doomed to disappointment."
Deming had such an impact on humanizing business as his 14 points focus on how to motivate the brains in your business. Too many managers ask their team to check their brain at the door. Ford took over the world leader in cars - GM - after consulting help from Deming. 

Ford Motor Company was one of the first American corporations to seek help from Deming. In 1981, Ford's sales were falling. Between 1979 and 1982, Ford had incurred $3 billion in losses. Ford's newly appointed Division Quality Manager John A. Manoogian was charged with recruiting Dr. Deming to help jump-start a quality movement at Ford.^[17] Deming questioned the company's culture and the way its managers operated. To Ford's surprise, Deming talked not about quality but about management. He told Ford that management actions were responsible for 85% of all problems in developing better cars. In 1986 Ford came out with a profitable line of cars, the Taurus-Sable line. In a letter to Autoweek Magazine, Donald Petersen, then Ford Chairman, said, "We are moving toward building a quality culture at Ford and the many changes that have been taking place here have their roots directly in Dr. Deming's teachings."^[18] By 1986, Ford had become the most profitable American auto company. For the first time since the 1920s, its earnings had exceeded those of arch rival General Motors (GM). Ford had come to lead the American automobile industry in improvements. Ford's following years' earnings confirmed that its success was not a fluke, for its earnings continued to exceed GM and Chrysler's.

In 1990 Marshall Industries (NYSE:MI, 1984-1999) CEO, Robert Rodin, trained with the then 90 year old Deming and his colleague Nida Backaitus. Marshall Industries' dramatic transformation and growth from $400 Million to $1.8 Billion was chronicled in Deming's last book "The New Economics", a Harvard Case Study, and "Free Perfect and Now".

In 1982, Dr. Deming, as author, had his book published by the MIT Center for Advanced Engineering as Quality, Productivity, and Competitive Position, which was renamed Out of the Crisis in 1986. Deming offers a theory of management based on his famous 14 Points for Management. Management's failure to plan for the future brings about loss of market, which brings about loss of jobs. 

Why "Hey, I'm in a community" makes people work

In baseball, a guy hits a home run, goes around the bases, and all his teammates come out and they give him a high five, and that’s awesome. And then every time somebody hits a home run, they do that.

In private equity, people tend not to do that enough, so when Loewen & Partners achieves a goal, we have to go celebrate. When I did my MBA, we had a third of our mark based on a proper Masters' thesis, which was the best part of the MBA for most of us. I wrote my Masters' thesis on Total Quality Management, TQM, which the Japanese had embraced to leap frog themselves ahead of the Americans. I discovered the writing of Deming and his 14 points to achieve TQM. The last point stunned me - celebrate!

And there are two reasons why we need to do just that - throw a party. As human beings, we’re not emotionally and anthropologically different from who we were on the plains of Africa 100,000 years ago. We need to feel that "hey, I’m in a community."

The second reason is that out of everything that I could be focused on during a year, the thing that gets rewarded with a party will be the thing that I really focus on. So I’ll tell everyone, if we hit this mark or we hit that mark, we’re having a party. Then it’s been concretely expressed to the employees that that must be the important thing. So it’s a way to double and triple underline the really important goal.

Morley Salmon passes leadership of EMDA to Brian Koscak

How to get more from your people

I came out of Business School having used the case study method, where the professor speaks 10 percent of the time, and the students do the rest. It’s tremendously valuable in private equity to ask questions rather than do all the "telling". When you need the company to grow, you’ll get better answers than if you, the C.E.O., try to come up with most of the ideas and impose them. You actually get better work out of folks as a result of asking them to bring more to the strategy of the business.
Let me say something that’s going to sound surprising. As C.E.O. today, you actually can’t get anything done without your people. 
Fact. 
We can all understand this as we have all been at the bottom of the ladder, with bosses who inspire and some who do not. As a leader, if I have a really good idea and I go tell people, “Hey, you have to go do this,” or I impose it on them, people wonder, what does she really mean? It’s open to so much misinterpretation and confusion that actually you’re doing more harm for the organization than you are good.
So the job of the C.E.O. becomes, “Hey everybody, what are everybody’s good ideas? O.K., and what’s yours? That’s awesome. What do you think of that? Hmm,.."
Now, anybody can have a different view and it strengthens decision making.
I was reminded of this by a book recommended to me by one of Canada's leading coaches, Sharon Ranson who runs The Ranson Group, coaching executives in the financial industry. The Leadership Challenge is written by Kouzes and Posner and I assumed it would be a quick flip book but slowed down to appreciate the detailed examples. The Leadership Challenge is well worth a read over this holiday season, perhaps with a glass of eggnog?
You can reach Sharon Ranson at sranson At theransongroup.com 

Want to improve, get a coach

Getting a coach is the best thing that you can do. I’ve done four years with two different coaches, and it is just fantastic. There’s what you say and there’s what people hear, and the gap between those two is sometimes enormous. What really matters is what people hear, not what you say.

Being a manager also isn’t about trying to become perfect. You’re not going to stop making errors. But it’s about having a mature appreciation for the fact that you’re a flawed human being. Probably everyone around you is a flawed human being. What are your flaws and how are you going to manage around them? What are your strengths? How are you going to optimize those?

I also learned a good trick, which is to ask somebody, “How are you doing?” They’ll usually say, “Good.” And I’ll say, “No, no, really. How are you doing?” And they’ll answer, “Good.” But then I’ll say, “Tell me what would you say if you weren’t doing good? How would you express that to me?” And then they tell you things. It’s partly little tactics, but the more important part is making it clear that you want to hear what they have to say.

2 Job Interview questions asked by Private Equity

Q. What’s an effective question that you use in most interviews?

A. What’s the best and worst career advice you’ve been given in your career? That gets to the underlying point about what people think is important. The best career advice part gets to what they think is important; worst career advice kind of tells you whether the person is trying to snow you. I want to know if you’re trying to snow me under the stress of the interview and try to tell me things that you know aren’t true — that you don’t make bad decisions, that you haven’t gotten any bad career advice, that type of stuff.

The point is that the interview is uncomfortable, but so are budget review meetings and so are a lot of meetings in day-to-day life. We’re not a bunch of perfect people who work together. We’re all people with flaws. I want to know if you’re somebody who feels comfortable enough to talk about dumb things that you’ve done or dumb advice that you’ve taken. Phrasing it in the form of, “Hey, what’s the worst advice you got?” at least gives you a half-step of distance to it. It tells you something about the character of the person.

Q. What’s the best question people should ask in an interview?

A. When they ask you, “Hey, do you have any more questions?” ask them, “How do I help you get a gold star in your review next year?” The person who’s interviewing you had to go through a lot of effort to get this opening, particularly in this economy. Be empathetic and realize that they are hoping that this position is going to make their life better. Ask them how you can be a part of that.

The "how are you doing" job interview

The “How are you doing?” interview for private equity partnered firms has about a 50 percent chance of success. That kind of interview is just a social call, right? You’re not actually seeking to find out anything about somebody’s performance. All you’re talking about is vague generalities, some task ability and whether there is cultural "fit".

In the Loewen & Partners' Talent method, the structure is more, “What have you done in the past relative to what this job needs?” So if I’m hiring a CFO, we’ll have the CEO and the family business owner and two more in the interview committee, usually Board members. We’ll sit down first and say, there are 51 different areas that could be important that we’re looking for in somebody — a good coach, analyst, public speaker, all these different areas that could be important. 

We have to pick six, and it’s really interesting to have these discussions with your colleagues. In some cases it turns out that everybody’s got a different six, and that’s a problem.

Once you decide on the six characteristics that are most important for the particular job you’re trying to fill, then there’s a series of questions for each one, always focused on past performance. It’s no guarantee of future performance, but it’s the best predictor. What are the tasks to get done and has the person exposure to that work before.

Private equity management style is all about the deal

“If you want to build a ship, don’t drum up the men to gather wood, divide the work and give orders. Instead, teach them to yearn for the vast and endless sea.”

Private equity is about the deal and the numbers, so interest in human side of managing is not as visible. I enjoy the people side of growing a business. So the management style that I have is first, share your passion. Explain to people why it’s an exciting idea and how they can be involved in it. In an entrepreneurial business, the most important thing, the thing that creates the most excitement and value and interest in the business is the big picture — where are we going. You can destroy little bits of it by all these little errors that you make. But if you fix all of them and you don’t have the big picture, then you’re never going to get there. Really engaging people in that big picture is way more important, I think, to success.

So I’ve learned to do the big-picture stuff, and I can be really great at the analytics — sitting down and running the numbers. What I’ve had to learn over time is the middle part about, O.K., how do you build a team? How do you assign a team to do something? How do you give them enough rope to be successful, and when do you take it back? The middle part has been trial and error for me.

5 Leadership commitments to make today

This list reminds me of Deming, the father of TQM, and his 14 point plan for top quality companies. The 5 Practices of Leadership come from a highly recommended book written by Kouzes and Posner. They identify what they call "five leadership practices common to successful leaders".
Kouzes and Posner go on to suggest ten practical "behavioral commitments" among those leaders studied. I liked the reminder and I know this will inspire you once you see that you are probably trying to do them already.
Here they are:

1 Practice: Challenge the process 
Commitments: 
(1) Search for opportunities and 
(2) Experiment and take risks

Practice: Inspire a shared vision
Commitments: 
(3) Envision the future and 
(4) Enlist others

Practice: Enable others to act
Commitments: 
(5) Foster collaboration and 
(6) Strengthen others

Practice: Model the way to the desired objectives
Commitments: 
(7) Set the example and 
(8) Plan small wins

Practice: Encourage the heart of everyone involved
Commitments: 
(9) Recognize individual contribution and 
(10) Celebrate accomplishments 

Where did the 40% rise in M&A happen?

The number of Canadian M& A transactions remained relatively unchanged from the previous quarter at 268 transactions.  Cross-border activity, mega-deals and financial sponsors all played a significant role in driving up the value of Canadian M&A as each category saw significant improvements over the second quarter. 

Overall, it is exciting to see that Canadian M&A activity demonstrated a strong recovery in Q3 with a 40% increase in deal value to approximately $48 billion.  

Four interesting points for the Q3 results:

1. Canadian buyers continued to be acquisitive abroad, outnumbering foreign acquisitions of Canadian businesses by a ratio of 2.2-to-1
2. Bucking the trend, the value of Canadian-led acquisitions abroad exceeded that of foreign-led takeovers by a ratio of 4.1-to-1
3. Activity in the mega-deal segment of the market (deals valued in excess of $1 billion) rebounded to ten transactions valued at $32.2 billion
4. The Real Estate, Oil & Gas and Industrial Products sectors were the key drivers of M&A activity in Q3 representing 53% of announced transaction volume