Carlyle Group was associated with the politically powerful such as former presidents, cabinet members, and foreign heavyweights in politics such as British Prime Minister John Major. Its lucrative business was built on the use of these contacts to influence deals. It dealt with buying, transforming, and selling companies; mainly defense companies especially those doing business with the government. After a series of events that threatened to finish the company completely, the founders decided to change the strategy they used to do business. This was done in three stages that saw the company position itself well in the market, become profitable, and grow immensely. The discussion that follows covers the events that led to its decision to change its business strategy, the risks or “red flags” it faced after the drastic change of business strategy, and the various steps of implementing the strategic business plan.
The Carlyle Group was highly scrutinized as a result of the documentary Fahrenheit 9/11 by Michael Moore. The documentary made the group look like an illegal dealer with a tarnished image which other businesses should avoid. The documentary warned companies that wanted to preserve their good images and reputations to avoid doing business with Carlyle hurt the group’s reputation. The group, which was shrouded with secrecy, was also doing business with wealthy Saudi investors such as the Bin Laden family. Bin Laden was the mastermind of the 9/11 bomb blast in New York City. The firm was seen as a co-conspirator with the attackers and therefore a traitor, which destroyed its reputation. Its relationship with political figures such as George H.W. Bush and British Prime Minister John Major, who were losing influence on the populace in their countries, hurt Carlyle Group and damaged its reputation. This is the reason the Great Experiment started with discussions with both the Prime Minister and US president to step aside as its senior advisors. After these events, it was necessary for Carlyle to transform its image and business by looking not only for people with a good image but also experts in business issues.
Carlyle in its transformation had diversified and increased its business portfolio to investments that had not been covered before. This kind of strategic decision brings with it benefits and risks. Since its makeover, Carlyle has begun to raise suspicions with its ever-increasing assets worldwide. The group has extended and diversified its portfolio to all sectors of the economy. These companies are bought at record time and sold within the brink of an eye making huge returns in the process. This is the reason the Federal Trade Commission in January of 2007 restricted the Group from buying an energy distribution company by the name Kinder Morgan Inc. unless it agreed to forego its operational control of another company in its hand.
Another “red flag” is its increasing boldness in its financial coverage. Though the company has a long history and a better one than many companies, this trend is worrying since interest rates are low and things become difficult when they increase. The group’s boldness was demonstrated in the rental car company Heltz deal, where after just six months of acquiring it was sold to the public at a profit of $ 1 billion.
In the implementation of a participative approach to strategic decision making various steps were taken. The first step started by removing its senior advisors, that is, George Bush and John Major. Big investors such as the Bin Laden family were given back their investments. These were powerful politicians and individuals who could sway the decisions of the company greatly to a direction not necessarily rhyming with the needs of the company or the public it was serving. The founders brought on board well-regarded individuals in the top positions such as Louis Gerstner to show the group’s commitment to good corporate citizenship and diversification of business. This brought to the company an array of ideas and helped repair its image.
The second step involved increasing its fund to around forty-eight spread all over the world. This was highly against the norm as other companies would have invested in a small number of huge funds which they would have later sold or taken public. The company initiated eleven funds in 2005 and another eleven in 2006. This has made it the biggest fundraising company in private equity and the most competitive.
Step three involved a complete revamping of the management structure. This resulted in the decentralization of decision-making. This has been implemented by the formation of numerous investment committees comprising managers from different funds and backgrounds in the firm. Communication is done at the committee’s level instead of first consulting, originating, or taken for approval from the founders. Country managers can make and implement decisions and mobilize resources from the group funds for investment in their countries of operation without taking them to the founders for approval. At the top are the founders then chairman Gerstner followed by a team of investment managers after which more than 200,000 employees. This overhaul benefits the company by promoting positive behavioral consequences which lead to the achievement of financial goals.
Carlyle Group was associated with the politically powerful such as former presidents, cabinet members, and foreign heavyweights in politics, and its lucrative business was built on the use of these contacts to influence deals. A series of events led to change in the business strategy which saw the group emerge as a strong and profitable firm. As the business grew, however, “red flags” emerged which could lead to difficulties in the future. The group implemented the transformation towards a participative approach in decision making in three steps by first replacing its politically connected advisors then diversifying its assets and aggressively raising funds and finally by overhauling the management structures.