Efficiency and growth-performance: Navigating financial pressures in tech
A noticeable change has swept through the tech industry in recent months, with an increased emphasis on efficiency and streamlining operations.
This shift in the industry is largely attributed to the financial difficulties that many tech companies are currently facing.
Reports of poor financial performance and bleak forecasts for 2023 have prompted these companies to take action now. As a result, there is a growing trend towards widespread employee reductions.
The pandemic prompted this same industry to over-hire in a bid to seize market share, but the motives behind this move remain a mystery: shortsightedness or poor decision-making?
However, many companies are now taking advantage of the situation and using it as an opportunity to shed excess weight.
Portfolio company due diligence: Overstaffing and skillset gap
Against this backdrop of underperformance in the tech industry, a mid-cap private equity firm commissioned us to carry out commercial due diligence on one of their portfolio companies.
The company had experienced a peak in performance during the COVID-19 pandemic, but for the past 24 months, it had been operating at a negative EBITDA and had failed to achieve or demonstrate any growth.
The analysis revealed that the underlying issue was that the company was bloated, with a clear skillset gap and a dysfunctional culture. This was exacerbated by remote working during the lockdown.
To tackle these challenges, we worked with the private equity firm and leadership team to develop a plan to balance the pursuit of efficiencies with the drive for growth.
- The first step was to establish clear objectives and key results (OKRs) focused on growth and profitability. This allowed the team to track progress towards their goals and make adjustments as needed.
- The second step was to cut non-essential staff and expenses by 20%. This was a difficult decision, but it was necessary to right-size the organisation and reduce costs.
- The final step was to coach and train underperforming employees or release them from their roles.
This was an important step to address the skillset gap and ensure that the remaining employees had the skills and capabilities required to drive growth and profitability.
Cultivating a growth-performance culture
We recognised the risk of downsizing and change. Such changes could easily unsettle employees and lead to a long-term impact on their performance and well-being.
To mitigate this risk, we advised them to cultivate a growth-performance culture where leadership set an example by acknowledging their weaknesses and embracing a servant leadership approach.
In this culture, employees felt empowered to take risks, experiment with new ideas, and push the boundaries of what is possible.
From my own experience, this approach is essential for creative thinking, innovation, and growth.
When employees perceive any failure as a personal defeat, they may shy away from risk-taking, which can stifle innovation and growth.
While results are important, the team tracked all initiatives using the defined OKRs, so that successful efforts were retained, while unsuccessful ones were quickly adapted.
This approach has the potential to increase innovation, enhance products and services, and ultimately drive greater success in the marketplace.
Rapid change and growth
Microsoft is a prime example of a company that successfully made the shift to a growth-performance culture.
After a decade of almost no growth, Satya Nadella was appointed as the CEO of Microsoft in 2014. From that point on, he embarked on a transformational journey of relatively rapid cultural change.
Through a combination of vision, strategy, and perseverance, he led the company towards a brighter future. Along with other transformational steps, such as embracing AI and cloud computing, these efforts resulted in a surge in growth for the company.
Nadella recognised that Microsoft’s culture needed to change to become more innovative and customer-focused. He shifted the company’s strategy from the traditional operating system business to focus on cloud computing and artificial intelligence.
He also embraced a growth-performance culture, encouraging employees to take risks and experiment with new ideas.
Microsoft’s successful transformation shows that companies can make significant cultural changes that can drive growth and success. However, it requires a clear strategy, strong leadership, and a willingness to embrace change.
The shift towards efficiency in the tech industry is a necessary response to the current economic climate. Consequently, companies must balance the need for growth with the imperative of reducing costs and eliminating excess weight.
This can be a difficult process, but with the right approach, it is possible to cultivate a growth-performance culture that empowers employees and drives success in the marketplace.
At Citius Partners, we have the expertise and experience to help you turn your business around.
Contact us today if you would like to discuss a similar commercial due diligence.
About Mitul Ruparelia
Mitul Ruparelia is a Managing Partner of Fortius Partners, a growth transformation partner for private equity and venture capital backed businesses. He has over 20 years of growing profitable, sustainable business units, defining strategy and leading sales, marketing, product, innovation, finance, raising investment and people management for established, underperforming, and scale-up businesses. He has helped companies scale to valuations of over $1 billion.
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