May–June 2022

The CEO of New Mountain Capital on Using PE Management to Ignite Growth

Twelve years ago, in 2010, the private equity firm New Mountain Capital acquired a little-known Wisconsin software company, RedPrairie, for $565 million. In September 2021 it sold that same company, now named Blue Yonder, for $8.5 billion to Panasonic. About $5.7 billion of the gain had come from organic growth, not acquisitions. That success wasn’t driven by any specific lucky break, technology breakthrough, or new product. Rather, it was the result of continual investment and improvement in the company’s management, strategy, and governance—the same approach that best-in-class private equity firms have employed for years across dozens of industries and thousands of companies. By explaining how New Mountain transformed Blue Yonder, this article shows how private equity firms create value for businesses and for the economy. And it underscores how much the PE industry has evolved since its inception.

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Democratizing Transformation

Many companies struggle to reap the benefits of investments in digital transformation, while others see enormous gains. What do successful firms do differently?

This article describes the five stages of digital transformation, from the traditional stage, where digital and technology are the province of the IT department, through to the platform stage, where a comprehensive software foundation enables the rapid deployment of AI applications.

The ideal is the native stage, whose hallmarks are an operating architecture designed to deploy AI at scale across a huge, distributed spectrum of applications; a core of experts; broadly accessible, easy-to-use tools; and investment in training and capability-building across the enterprise.

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Developing a Digital Mindset

Learning new technological skills is essential for digital transformation. But it is not enough. Employees must be motivated to use their skills to create new opportunities. They need a digital mindset: a set of attitudes and behaviors that enable people and organizations to see how data, algorithms, and AI open up new possibilities and to chart a path for success in an increasingly technology-intensive world.

This article lays out the basic principles of developing a digital mindset across the workforce, drawing lessons from Philips, Moderna, and Unilever.

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The Next Great Digital Advantage

We’ve all seen the signs in front of McDonald’s announcing “Over X Billion Served” and have watched the number rise over the years. But tracking how many burgers are sold every day, month, or year is a relic of the past. Today ask: Do we know where each consumer buys her burgers? At what time? What does she drink with it? What does she do before or after buying a burger? How can we satisfy more of her needs so that she keeps coming back? Datagraphs capture this information, helping to reshape competition in every sector. Leaders must invest in upgrading their data architecture to enable a real-time, comprehensive view of how consumers interact with their products and services so that they can develop unique ways to solve customer problems.

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Designing Work That People Love

Resignations are at an all-time high, and companies desperate to fill vacancies are trying everything from pay raises to trendy perks. But those interventions are falling short, because the real problem, as the author explains, is that so many jobs are stressful, meaningless, and unlovable.

Buckingham’s data on what keeps employees engaged (from his work at ADP Research Institute) suggests that companies should change their approach to performance management to take advantage of each employee’s unique skills and passions. That necessitates three mindset shifts: viewing employees as the key stakeholders in the organization; moving away from standardization in performance management tools; and trusting employees to accomplish their performance goals the way they see fit.

No company today is yet the full “Love + Work” organization that Buckingham describes, but lululemon, Walmart, Amazon, McKinsey, and Cisco are among those that have begun to embrace some of its characteristics and have seen improvements in both retention and overall performance.

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When Your Business Needs a Second Growth Engine

Traditionally, the most reliable way for a firm to find its next wave of growth was to apply the capabilities of its core business in an adjacent market. But recently a new pattern has begun to emerge. More firms are learning the art of building large second cores—what Bain’s Zook and Allen call engine twos. Given that in the past five years, 60% of big public companies have seen their growth stall out or stagnate—often because of technological disruption—finding an engine two has become increasingly imperative.

What does it entail? Successful engine twos have four factors in common: They target markets where the profit pool is sizable and growing or shifting, as Amazon’s cloud computing business did. They have a differentiated competitive advantage, which is often built up through acquisitions, as happened at Disney+. They adopt entrepreneurial approaches, like Bradesco’s digital unit, Next, and leverage the scale and assets of the original core, as the industrial cleaning company Ecolab’s new water-purification business did.

In combination these four elements magnify one another’s effects, often creating businesses that have much greater potential than firms’ original cores.

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The Telehealth Era Is Just Beginning

Contrary to what many people think, virtual health care, also known as telemedicine or telehealth, is much more than a cheap digital knockoff of in-person care. When used appropriately, it improves patient health, reduces costs, and makes care more equitable and accessible to anyone with a smartphone. Its use has soared during the Covid era—and the authors argue that providers around the world should aggressively strive to tap its full potential even after the pandemic abates.

Pearl and Wayling take readers inside Kaiser Permanente and Intermountain Healthcare, two of telehealth’s earliest adopters and most effective users in the United States. They show how telehealth can reduce expensive and unnecessary trips to the ER, reduce America’s chronic-disease crisis, address disparities in care, make specialty care faster and more efficient, and provide access to the best doctors. And they outline what’s needed to spur adoption to a fully telehealth-driven system. Employers, who currently provide health insurance coverage to nearly half the U.S. population, could drive such a change by banding together and designing new reimbursement and care delivery approaches. The resulting savings could amount to tens of billions of dollars a year.

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How to Build an Anti-Racist Company

As a Black man with three decades of experience in the corporate world, the author has a deep understanding of how to conceive and implement diversity, equity, and inclusion agendas from the top down. Following the 2020 murders of Ahmaud Arbery, Breonna Taylor, and George Floyd, he was approached by numerous executives who wanted to act to combat systemic racism and sought his advice on how to proceed. So White and his daughter Krista wrote the book Anti-Racist Leadership to share what he has learned.

In this article, adapted from the book, White provides guidance for getting started. Leaders should listen to and learn from colleagues across the organization, enlist senior executives in the cause, audit the culture, and document what their companies are already doing to foster diversity and inclusion. They should then establish benchmarks for measuring progress, build “action learning teams” to spearhead the effort, and develop and communicate an overall plan.

As the world goes into economic recovery mode, leaders have a brief window in which to reimagine their approach to the workforce. This article can help them seize the opportunity and bring fully inclusive cultures to the organizations they run.

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A Better Approach to Avoiding Misconduct

Despite substantial regulatory reform following the 2008 financial crisis, financial firms are still suffering from fraud and other forms of ethical misconduct. As a result, they have collectively paid out more than $400 billion in fines over the past 12 years. A 2019 Harvard Business School study found that among a sample of Fortune 500 companies, more than two instances of internally substantiated misconduct occur each week, on average. It’s becoming increasingly clear that the traditional approach to financial regulation—imposing formal rules and investing in a strong compliance function to ensure that institutions, managers, and employees comply with those rules—cannot protect firms against excessive risk-taking and financial misconduct.

The authors of this article draw on their experience advising some of Europe’s largest financial institutions to present an alternative approach to compliance that is based on the principles and discoveries of behavioral psychology. It involves understanding the contextual drivers of human behaviors and introducing small changes, or “nudges,” to eliminate misconduct at the source.

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Stop Selling. Start Collaborating.

The triple fit canvas is a sales framework designed to facilitate collaborative value creation between sellers and buyers. Inspired by the blue ocean strategy canvas developed by Chan Kim and Renée Mauborgne and the business model canvas developed by Alexander Osterwalder and Yves Pigneur, the triple fit canvas is both a diagnostic and an action framework. It extends a limited, product-centric view to a broader, customer-centric perspective. It shifts the focus from selling existing products and services to helping create new ones. In this article the author details the key components of the triple fit canvas and describes how companies such as BMW, Konica Minolta, and GAP have benefited from it.

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Act Like a Scientist

Though they’ve been warned for decades about the dangers of overrelying on gut instinct and personal experience, managers keep failing to critically examine—much less challenge—the ideas their decisions are based on. To correct this problem they need to think and act like scientists. That requires doing five things: (1) being a knowledgeable skeptic and relentlessly questioning assumptions; (2) investigating anomalies—things that are unexpected or don’t look right; (3) devising testable hypotheses that can be quantifiably confirmed or disproved; (4) running experiments that produce hard evidence; and (5) probing cause and effect.

Drawing on the experiences of Harrah’s Entertainment, Sony, Bank of America, and Lego, Thomke and Loveman show how scientific methods can help companies discard ineffective practices, increase marketing and operational efficiency, boost customer satisfaction and sales, find new sources of growth, and even turn around struggling businesses.

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How to Get the Most out of Peer Support Groups

For years business leaders have turned to peer forums—groups of four to 10 people with similar interests who meet regularly for confidential conversations—to share their problems, find support and insights, and learn and grow. But because such forums are small and private, many people don’t know much about them. In this article two authors who have studied forums extensively open a window into them. Drawing on their research, Groysberg and Halperin explain the different types of peer forums, how they can benefit individuals in a variety of jobs and organizations, and the principles and practices that make them successful, as well as the challenges they sometimes face.

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How to Stop Procrastinating

Do you keep postponing work you need to do? The problem probably stems from one of three things: your habits and systems (or lack thereof), your desire to avoid negative emotions (like anxiety and boredom), or your own flawed thinking patterns (which can make a task seem harder than it is). Luckily, there are simple strategies for managing each.

To develop good habits, for instance, do your important work in a consistent pattern daily: After I do this, I do my deep work. Devise a system for starting new tasks (drawing on one you’ve handled well); that will make it easier to get the ball rolling. When a task makes you anxious, do the easiest part first and progress from there; motivate yourself to do a boring task with a reward for completing it. And if you’re cognitively blocked, consider what would make a task impossible—and then identify its opposite.

Novel work often is filled with friction. You must recognize that tension doesn’t mean you’re not making progress. And if a project still feels overwhelming, tackle it in small chunks of time, not big ones.

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