In a rare moment of frustration, mid-market investment manager Jan complained: “We agreed a full-potential plan with management. But now, a year in, implementation is delayed and we don’t understand why.”

It’s a common story. But, as an investment manager, how do you diagnose the root cause? Do you really understand how the portfolio company is being managed? Management decision-making processes and rhythms aren’t codified.

They are driven by the institutional knowledge of managers and employees based on their past experience. The information used for decision-making, and how it is utilised to initiate action, vary greatly between companies based on their past legacies and development.

And, of all the aspects that define culture, management processes most directly drive a portfolio company’s ability to implement the full potential plan. Investors implicitly assume that a leadership team that made it through a rigorous due diligence process understands what’s needed to implement a new full-potential plan.

This is increasingly a flawed assumption. Given today’s high multiples and ambitious value-creation plans, leadership processes that were adequate in the past are more likely than not inadequate for the future – what got you there won’t get you there. International expansion, accelerated revenue growth and faster innovation all have implications for management processes.

Digitalisation, AI and systems are also automating the access to information, and even pattern-recognition and decision-making that was done by managers. Technology is changing what best-practice leadership and decision-making processes look like.

But if leadership processes are tribal knowledge and not codified, how can an investment team and senior management know if the portfolio company’s processes are adequate to master the implementation of a new value-growth plan? Thankfully, a systematic audit of management process quality based on a maturity model can be used to identify where leadership processes need an upgrade.

Codified best-practice leadership processes, in key functions and for different industries and firm sizes, enable identification of potential bottlenecks. Management process maturity models are helpful because they codify what best practice looks like in a specific context and how it should be implemented in practice – thus saving the delay, additional cost and risk of replacing a manager.

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