Today, there is increasing pressure on investors to show return on investment (ROI) at both scale and speed. However, the industry’s focus has concurrently shifted towards sustainable operational value creation, meaning private investors now need to also access operational expertise. A key set of tools is required to ensure smart and sustainable ROI are operational value creation levers.
In a recent article, Operational Value Creation — An Investor's Edge, compiled by Partner Pietro Castronovo, we discuss what the various levers are, as well as the organizational structures needed to maximize value. We also speak to leading equity and sovereign wealth fund investors, who share how they themselves have laid the groundwork for success.
In 2021, global mergers and acquisitions (M&A) activity was at an all-time high of around $5.9 trillion (about $18,000 per person in the US), but this dipped to around $3.5 trillion (about $11,000 per person in the US) in 2022. Finding the right deal is a challenge, but once that is overcome, investors deal with even bigger hurdles: namely, how to provide accelerated returns and how to prioritize among potential investments.
Dissecting the three key factors of success to unlock value from your business
Despite a variety of approaches to operational value creation, our analysis has revealed that there are three things that investors consider key to success:
1. Strong collaboration is important and good governance provides guidelines — but it takes time
“A key element is how you embed the value creation team within the organization,” says the Head of Transformation and Restructuring for a Gulf Cooperation Council (GCC) sovereign wealth fund. “We have a deal team, industry vertical teams and a value-creation team. The most challenging part is how they work together.”
2. Upskilling and staffing adjustments — when to opt for inhouse or outsourced
Investors must analyze where and when to appoint external spend so that they are not overloaded with internal costs without a clear understanding of incremental value add. Those more cautious on the spectrum continue to maintain a lean organization, therefore relying more on external spend, versus a more hands-on approach that creates capabilities in-house. There are of course merits to both approaches — but the key is understanding where to prioritize your focus.
3. Figuring out which levers are right for each project
There are many kinds of levers, and not all can be focused on concurrently, so prioritization is key. Timeframes and priorities depend on a multitude of factors, requiring a deep understanding of both your portfolio and its potential.
Download the PDF below, for the full list of 35 operational value creation levers to unlock value from your business.