Private equity firms shift focus to operational improvements for growth

In recent months, private equity firms have increasingly acknowledged the necessity of improving growth within portfolio company operations. This trend has emerged in response to the evolving market landscape, compelling many firms to reassess their strategies and prioritize operational excellence. Historically, private equity firms have created value through acquiring and integrating companies, a method that is becoming less effective in the current environment. Instead, the spotlight is shifting towards enhancing operational efficiencies internally, with a keen emphasis on empowering the office of the CFO. This approach has been essential as the office of the CFO is often overlooked in past strategic frameworks. Enhancing this office encompasses a broad array of efficiencies, from improving commercial effectiveness and optimizing supply chains to making significant developments within financial management systems. By modernizing processes and systems, improving data visibility, and enabling finance leaders to transition from traditional recordkeeping roles to providing strategic guidance, private equity sponsors can facilitate accelerated value creation in quantifiable manners. Despite the potential benefits of focusing on operational improvements, the process is not without challenges. Many organizations struggle to maintain stability, particularly in smaller companies where early successes can lead to an underestimation of the need for robust foundational infrastructure. This complexity is compounded by the expectation that CFOs and finance leaders will wear multiple hats, acting in roles that include chief accounting officer and chief development officer, among others. It is crucial for sponsors to seek outside counsel to circumvent biases that may lead to inefficient long-term solutions. By fostering collaborative environments early on and establishing clear expectations, private equity firms can avoid common pitfalls that result in significant cost overruns or project mismanagement. This proactive approach not only encourages accurate budgeting but also reaffirms job security within finance teams. Over the past five years, nearly half of private equity technology engagements targeting the CFO office aimed to rectify suboptimal system selections or implementation strategies rather than optimizing them from the outset. Investing in automation and advanced reporting tools empowers finance leaders to direct their teams towards high-value tasks, contributing to overarching value creation strategies. Ultimately, the firms that achieve superior outcomes are the ones that cultivate a culture characterized by operational rigor and preparedness. By addressing the critical needs of their organizations promptly, enlisting the support of seasoned advisors, and facilitating effective change management, private equity firms position themselves to thrive in competitive markets. This paradigm shift towards operational diligence, particularly within the financially strategic office of the CFO, is underscored by the importance of timely data access and a robust internal control framework, which collectively shape an organization's growth trajectory.