Over the years, private equity has shifted from a focus on leverage and financial engineering to an ever-increasing emphasis on creating value through operational improvements within their portfolio companies. This shift includes enhancing management practices, investing in technology upgrades, and creating new sources of revenue.
As market conditions grow more competitive and complex, the ability to drive value through operational improvements has become a key differentiator in achieving superior investment returns.
In many ways, creating value is a more difficult path. It means working with portfolio management to refine their product or service focus, streamline operating processes, align management performance systems, and change fundamental behaviors of both managers and employees.
Here, operational optimization experts across several unique sectors outline where value can be found and identify ways to unlock it.
MANUFACTURING & CONSTRUCTION
In the current environment, leadership is increasingly being pressured to react to market turbulence. One significant result of that is that we’re seeing a heightened need for a project management framework.
Corporate objectives and strategies are being created all the time. But having strategies in play without any path forward can be a detriment. A well-structured Project Management Office (PMO) and a framework that overlays the facilitation of the work is a key ingredient that drives implementation, ultimately providing rapid and sustainable ROI.
Defining the right expectations, milestones, and timelines is important, but, because time is money, managing them closely to an outcome is critical.
Our team of consultants recently helped a global service provider to develop a framework for the management of internal improvement projects. Multiple mergers and acquisitions had created operational inconsistencies within the business. These inconsistencies, coupled with rising interest rates, created pressure on the organization’s leaders to rapidly reduce costs and streamline processes. The first nine months of our initiative produced significant improvements in process alignment, planning, and execution, resulting in more than $15 million in annualized savings.
HEALTHCARE
Private equity firms that are invested in or are looking to expand a healthcare rollup will often struggle to integrate best practices and standardize execution. This leaves valuable margin dollars on the table. Firms are often working with technical experts, such as physician-owned businesses, where resistance to standardization is common. There is an added complexity in that the operations are dealing with people’s lives. There are many risks and operational challenges surrounding this type of business.
It is in this space that operational management experts are able to create a thoughtful operating model that can be used to not only to compare performance across the network but create a useful blueprint for additional acquisitions.
After adopting the new operating model, the network realized a 27% increase in productivity, 10% improvement in capacity,
and a 24% improvement in patient access.
A leading healthcare network, for example, wanted to improve performance and patient access across multiple outpatient facilities to provide growth opportunity and understand asset capacity and utilization. Upon analysis, our consultants discovered that key assets were underutilized by more than 50%, appointment wait times were exaggerated due to scheduling deficiencies, and planned procedure times were not aligned with actual procedure times. Significant rework was also created by disconnects between key departments.
To address these challenges, operational management experts created a comprehensive operating model to improve visibility to key drivers of capacity and utilization while increasing access for patients. The implementation of this model focused on aligning procedures across clinics, with a strong emphasis on communication and training to ensure buy-in from all staff.
After adopting the new operating model, the network realized a 27% increase in productivity, 10% improvement in capacity, and a 24% improvement in patient access. Patient satisfaction scores improved, indicating a more consistent experience and enhanced quality of care.
This example demonstrates how a thoughtful and collaborative approach to standardization can bridge the gap between numbers-driven objectives and patient-centered care, ultimately leading to better financial and operational outcomes. Alignment and adoption among facilities, locations, or environments is a critical piece of that puzzle, and communication is integral to this.
FINANCIAL SERVICES
Financial service organizations, such as insurance companies and credit unions, are fundamentally about customer service. Success often hinges on whether customers feel supported and understood. While local staff often go above and beyond to provide excellent service, this dedication can lead to inconsistent practices across different branches, making it difficult for corporate offices to standardize processes and measure performance accurately.
To resolve these disparities and enhance overall service quality, it’s essential to establish clear, organization-wide standards for customer service, processes, and systems. This involves defining best practices, standardizing operations while minimizing unnecessary variations, and implementing a robust system of metrics and regular follow-ups. By focusing on aligning customer service and operational goals across all branches, financial service companies can optimize their business as a whole, ensuring a more consistent and effective customer experience.
The operational transformation resulted in productivity improvements ranging from 7% to 57%, a reduction in labor cost averaging 14%,
and service level improvements of more than 17%.
One example of this can be seen in a large insurance provider with multiple branches that struggled to identify process optimization opportunities due to a highly variable knowledge-based work environment. Non-value added work and uneven workloads existed in many departments, and cultural barriers created obstacles to the development of consistent practices.
To address this issue, our team of consultants implemented a company-wide initiative to establish processes and workflows that increased productivity and reduced errors and duplication. This included customized, location-specific changes to maintain valid region differences as well as improved management operating system tools to track and respond to variances to plan.
The operational transformation resulted in productivity improvements ranging from 7% to 57%, a reduction in labor cost averaging 14%, and service level improvements of more than 17%.
This example illustrates how strategic standardization and process alignment can enhance service quality, leading to efficient operations and a more reliable positive customer experience across locations.
Private equity professionals increasingly recognize the importance of having a robust network of operational management experts to help drive operating cash flow. Operational experts bring specialized knowledge and hands-on experience that can significantly enhance the performance of portfolio companies and help build high performance management teams. They identify inefficiencies, streamline processes, and implement best practices that lead to sustainable growth and profitability.
For private equity firms, leveraging such expertise not only maximizes value creation but also provides a strategic advantage in navigating the intricacies of modern deal-making and post-acquisition integration.
About the Author:
Carl Valentino is a seasoned executive with over three decades of senior management experience in the private sector. He currently leads the Private Equity division at Carpedia International, a global consultancy specializing in the implementation of operational improvement. Throughout his career, Carl has collaborated with C-level executives across diverse industries, spearheading initiatives that drive revenue growth, optimize cost structures, and enhance working capital management. A proud graduate of Notre Dame, Carl resides in Atlanta, Georgia.
Carpedia International is a global operational improvement consultancy that partners with organizations across various industries to help them achieve sustainable performance enhancements. By focusing on aligning corporate strategy with day-to-day operations, Carpedia delivers customized solutions that drive measurable improvements in productivity, profitability, and organizational culture. The firm utilizes a hands-on approach, working closely with clients to identify inefficiencies, implement best practices, and ensure long-term success through continuous improvement and accountability.
For more information, visit www.carpedia.com.
© 2024 Private Equity Professional | November 22, 2024