4 ways private equity firms can improve and drive value.
Read time: 4 minutes
More and more, private equity deals feature substantive operational improvements that result from the application of broad industry and functional experience. Increasingly, private equity firms and their operating partners are in the trenches with their portfolio companies, actively influencing and investing in core operations as often as they are cutting costs to build value.
Private equity partners and consultants working with portfolio companies should consider these four often overlooked operational drivers of ROI.
Outsource lifecycle services and focus on the business's core competencies
Outsourcing can have a poor perception, yet partners working with a private equity firm's portfolio companies should put every aspect of operations under a microscope and look for ways their portfolio companies may be able to benefit by outsourcing specific service and support processes.
One area where private equity firms can better manage program costs and deliver stronger returns is in the area of lifecycle services. If your portfolio company already has an in-house call support center or field service program, it's worthwhile to look at the costs and benefits of keeping those programs in-house. The truth is that in-house service programs require resources: space, equipment, ongoing training, and employee staffing expenses. Plus, services programs are usually considered peripheral or discretionary to the core business, and rarely seen as revenue generators. Service providers who specialize in this work are already set up to perform more efficiently and economically and may even provide solutions that can turn supporting programs into revenue generators for all involved.
If you have startup companies in your portfolio, don't build service programs from scratch, outsource this work and keep company resources focused on core product innovations.
Improve operational efficiencies
Optimizing business performance is a driver of ROI. Private equity firms can find stronger returns and savings by examining customer service processes and outsourcing to produce better results where it makes sense.
Example: An electronic instruments manufacturer was displeased with the disruption and inefficiency caused by calls related to a warranty program. In addition, the call resolution times for this program had increased to almost a full day due to staffing and budget constraints.
A comprehensive solution provided:
Decreased warranty call response time from 24 hours to minutes per call.
100% first call answer rate.
40% reduction in overall technical response time.
A 50% resource savings by outsourcing technical service calls.
A distributed solution to outsource the handling of warranty replacement items and reduced 300 separate warranty transactions to one monthly report.
Elevate business value without upfront capital expenditure
Private equity firms typically place debt on a portfolio company, which can constrain the ability to operate. Maximizing profit and growth while keeping capital expenditures to a minimum is a crucial driver of ROI. Outsourcing keeps capital investment in people and equipment to a minimum without sacrificing the customer experience. Private equity firms should ensure capital-efficient, profitable growth and a superior customer experience that drives value.
Example: A leading provider of cash handling technology solutions embodies the idea of switching service providers to streamline and improve ROI with its call center support processes. The goals were to reduce monthly costs while maintaining service effectiveness, and accommodating volume increases in certain key countries.
Scaled call volume by 1,200% while improving call wait times.
Improved call answer times by 83% (3-4 minutes to a 30-second average).
Providing additional language support, which increased coverage in 3 countries.
Achieved significant annual savings.
Takeaway: Partner for improved ROI
Private equity partners should explore these central areas of operations to uncover any hidden costs, and then streamline the service business processes of their portfolio companies. Partnering with service providers can be much more efficient and effective than a company's in-house team because they provide turnkey operations capabilities. Leveraging these capabilities enables a private equity firm to spend less and achieve more with their portfolio companies, and that's more important than ever when trying to increase revenue and squeeze everything out of the top and bottom lines.
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