Merchant banking requires us to conduct analysis—on the marketplace, on the operations, on the competition, on the management team, for due diligence, and on the future business environment. Furthermore, we promote predictive (versus reactive) management approaches in managing companies as you will understand from what follows. Predictive management techniques also require and benefit from practical and on-going analysis. Therefore, Bella Carlo provides analytical and advisory services for our merchant-banking engagements but also as an independent offering to those who would gain, such as attorneys, accountants, private equity groups and bankers, from our analytical services.

Bella Carlo prefers predictive over reactive management practices.  Many managers believe their job is to resolve problems. While this is partly true, it is the lesser part of the job.  A manager's job is to prevent problems. This is the difference between reactive management, which solves problems as they occur, and predictive management, which tries to prevent many problems from arising in the first place.

Reactive management deals with problems as they come up. It is a management style that is much admired for its ability to quickly get the resources back into production, whether those resources are machines or people. If you are good at reactive management, you are:

• Decisive and able to act quickly,
• Able to find the root cause of events,
• Creative and able to develop many solutions,
• Innovative and able to find new ways to solve problems, and
• Calm and in control in the midst of a "crisis".

A reactive-management style is a desirable skill set for a manager. By quickly solving problems they are able to get the people and/or machine quickly back to work and productive again. But, it's not the best style that builds long-term, sustainable value. Managers should concentrate on improving their ability in predictive management as well.

Predictive management focuses on reducing the number of problems that require reactive management. The more problems that can be prevented through predictive management, the fewer problems will need to be solved through reactive management. If you are good at predictive management, you are:

• Thoughtful and analytic,
• Not likely to go chasing after the current panic,
• More aware of the important than the merely urgent issues,
• Able to identify patterns in data and patterns of failures,
• More focused on "why" did something go wrong, rather than "what" can be done to fix it, and
• Able to keep the big picture in mind when working through the details.

Someone good at predictive management is sufficiently detached that they can identify the conditions that lead to certain problems and can implement procedures to reduce or eliminate the problems. Rather than being concerned about the immediate problem, they are able to relate current conditions to earlier information and predict when problems might arise.

Bella Carlo Practices Predictive Management

The staff at Bella Carlo works with its management teams and clients to spend time every day on predictive management and on developing and honing the skills listed above. Here are some of the activities Bella Carlo encourages.

• Schedule time to evaluate daily activities with regards to the overall strategic plan.
• Identify the top three problems facing the company in simple terms, e.g., how do they affect sales, gross margins, operating income and cash flows?  Then analyze the situation, again in simple terms, looking for “differences” in the way things have been done. Ask the following questions for each of the problems and look for supporting information and/or data to help answer the questions :
• When did it happen most recently?
• What caused it?
• What warnings or indicators did we have before it happened?
• What was done to fix it?
• What could be done to prevent it?
• What can be done to reduce the chances of it happening again?
• Monitor progress using explicit metrics and benchmarks.
• Evaluate the results and make adjustments if necessary.

The more predictive management is practiced the better you will be at it. You will still need your ability in reactive management, but not as much. Your resources will be used to adding enterprise value rather than on fixing problems and you'll have more time to think about the future successes.