How Private Equity Drives Operational Efficiency: The Employee Perspective

Private equity (PE) firms are known for their ability to transform companies, driving operational efficiency and profitability to create value in a relatively short time. As an employee in a PE-backed company, you will find that there is a strong emphasis on improving processes, cutting unnecessary costs, and driving productivity. But what does this mean for your day-to-day work, and how can you play a part in this transformation?

What Drives Operational Efficiency in PE-Backed Companies?

One of the core goals of a private equity firm is to optimize the operations of the companies they acquire. This challenge is compounded as acquired firms take on roll-up acquisitions to gain accretive revenue, access new technology or exploit distribution or customer networks.

For example, a PE firm might invest in technology to automate certain functions, restructure teams to reduce redundancies, or renegotiate contracts with suppliers to lower costs. The goal is always to increase the company’s profitability, making it more valuable for an eventual exit—whether that’s through a sale, IPO, or another route.

The focus on operational efficiency means that there’s often a push for more accountability, clearer performance metrics, and faster decision-making. This can create both opportunities and challenges for employees.

How Employees Can Contribute to Operational Efficiency

In a PE-backed company, everyone—from entry-level staff to senior executives—is encouraged to think about how they can improve efficiency. The concept of "efficiency" is broad and may vary depending on your role, but here are some ways you might be expected to contribute:

1. The power of the 1%: Whether in production, sales, or another department, you’ll be expected to spot issues and act. Knowing the business and having an eye for the 1% daily improvements that drive out inefficiency is key to growing value.
2. Getting it done: One of the most valuable skills an employee can possess is the ability to get stuff done. Hard work is important, but results beat effort every time. Seeing the problem is one thing, but getting it sorted quickly is where real value can be created.
3. Understanding the big picture: Life in a PE owned company moves fast, and it is easy to get overwhelmed by detail.? Having a mindset that is anchored in the overall business growth strategy equips employees to know the difference between urgent and important tasks and to prioritise for maximum effect.
4. Adaptability: PE backed companies will invest in new technology where it will improve efficiency.? Be adaptable, be willing to adopt new technologies and processes and maintain a learning mindset.
5. Know your numbers: PE firms rely heavily on data to track performance and measure success. Data is the day-to-day language of the PE firm and knowing your numbers, understanding unit economics and the key drivers of profitability are critical.? The critical business metrics will help identify sources of inefficiency and measure improvement.

How to Adapt to an Efficiency-Driven Culture

Adapting to an efficiency-driven culture can take time, especially if your company has historically been less focused on speed and productivity. However, by embracing the following strategies, you can adapt more quickly and help support your company’s operational goals:

• Be Open to Change: A big part of driving efficiency is being open to new ways of doing things. Whether it’s adopting a new technology, revising an old process, or restructuring a team, flexibility is key.
• Understand how PE firms work: It’s highly likely that life in a PE backed firm is faster and more focused than where you have worked before.? You’ll be required to understand the business and communicate its performance in new ways.? Understanding how PE firms work, what they are trying to achieve and how they measure their own performance is key.?
• Embrace Continuous Improvement: Efficiency isn’t a one-time effort; it’s an ongoing process. Continuously look for ways to improve your workflow, and don’t hesitate to suggest improvements that could benefit the entire team or department.

The Bottom Line

In a private equity-backed company, driving operational efficiency is a constant priority. As an employee, you are in a unique position to influence the company’s success by identifying inefficiencies and contributing to improvements. While the pace can be fast and the changes frequent, the opportunity to be a part of a high-performing team that continuously seeks to optimize operations is both exciting and rewarding.