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The private equity (PE) landscape is undergoing profound changes. Historically, success in PE revolved around excelling in dealmaking—mastering complex transactions, identifying high-potential targets, and leveraging debt strategically to drive returns. These financial skills have long been the backbone of the industry’s value creation model.
But today, market forces like rising interest rates and persistently high asset prices are challenging traditional approaches. In response, PE firms are pivoting their strategies, and operational expertise is emerging as the new cornerstone for unlocking portfolio companies' full potential and ensuring sustainable growth.
The growing emphasis on operational excellence signals a transformative shift in how private equity firms operate. With deal flow becoming more competitive and opportunities scarcer, firms are turning their attention inward—prioritizing the optimization of their portfolio companies.
This shift requires a deep dive into the day-to-day functions of portfolio businesses. Instead of relying solely on financial engineering, firms are now driving value by enhancing supply chain efficiencies, advancing digital capabilities, and fine-tuning customer acquisition strategies.
For example, rather than restructuring finances as the primary lever, firms are identifying untapped opportunities—such as automating manufacturing workflows or introducing more effective retention programs—to create meaningful and sustainable growth.
Operational expertise demands a skill set distinct from traditional financial analysis. To address this need, PE firms are hiring operators—professionals with hands-on experience in building, scaling, and optimizing businesses. These individuals bring a pragmatic, results-driven approach to driving improvements across various industries.
Take the example of a Chief Operating Officer brought in to oversee a digital transformation at a manufacturing portfolio company. By implementing advanced analytics, automation, and predictive tools, the COO can significantly improve production efficiency, reduce costs, and elevate product quality—ultimately strengthening the company’s competitive edge and bottom line.
This "operator-first" mentality reflects a growing recognition that strategic execution is just as important as identifying promising deals.
The operational pivot is not limited to large PE firms with in-house resources. Mid-sized and smaller firms are also adopting this approach, often by building operational teams or partnering with external experts.
For instance, firms are increasingly collaborating with specialists like Vector Research to address critical growth areas, including customer acquisition, retention strategies, and pricing optimization. These partnerships provide tailored, actionable expertise, allowing firms to achieve measurable improvements faster and with greater precision.
Data underscores the growing importance of operational expertise in private equity. According to a Harvard Business Review study, operational improvements—including revenue growth initiatives and cost-cutting measures—have accounted for nearly half of the total value creation in private equity deals since 2010. This represents a sharp increase from earlier decades when financial engineering dominated.
Operational strategies are no longer an optional layer—they are a core driver of modern value creation.
While integrating operational expertise into the PE model creates significant value, it also introduces new challenges. For example, involving operational leaders in the due diligence process may slow down deal timelines as deeper assessments uncover previously unseen complexities.
However, this thorough approach ensures investments are better vetted, operational risks are addressed early, and decision-making is more informed. Vector Insights has supported numerous due diligence engagements, working at the speed of the deal while conducting comprehensive evaluations of digital marketing and operational growth levers.
In today’s evolving private equity landscape, firms like Vector Research are critical partners. Acting as an extension of PE teams, we provide specialized operational expertise to navigate modern market challenges.
Our team works closely with portfolio company management to implement data-driven strategies that improve customer acquisition, boost retention, and optimize pricing models. By focusing on measurable outcomes, we help PE firms maximize their investment potential while accelerating the timeline to value creation.
The private equity model is evolving. Operational expertise has shifted from a supporting role to a central pillar of value creation. Success today requires more than just financial acumen—it demands a proactive focus on optimizing and growing portfolio companies.
Firms that embrace this operational shift are better equipped to deliver sustainable growth and maximize returns, even in challenging market conditions. As operational excellence takes center stage, partnering with experts like Vector Research Partners ensures that private equity firms are ready to thrive in this new era.
by vector research partners