As we step into 2025, many of my mid-market private equity clients are engaging in deep self-reflection. They’ve come to a powerful realization: to effectively position their portfolio companies for accelerated value creation, they must recognize their identity not merely as funds, but as evolving business organizations. This shift entails advancing their own organizational development by aligning strategies, capabilities, organizational design, and human capital to meet their firm’s business and financial objectives.
For proactive private equity firms aiming for enhanced returns in today’s complex market, progress along their organization’s maturity curve should encompass:
1. Aligning Leadership Roles and Talent with Growth Goals
- Clarifying Internal Leadership: Establish clear accountabilities and performance measures for firm leaders and deal partners.
- Enhancing Leadership Development: Implement targeted coaching and development opportunities for deal partners and investment team members to elevate their skills as leaders and advisors for their teams and portfolio companies.
2. Building Senior-Level Value Creation Support
- Strategic Leadership in Value Creation: Consider who should spearhead value creation efforts within portfolio companies:
- Should it be the deal team or the investment team?
- Could operational partners and industry advisors take the lead?
- What role can external partners and consultants play in this process?
3. Optimizing Human Capital Practices and Capabilities
- Aligning on Value Creation: Collaborate with portfolio company management and boards to establish a clear value creation plan and strategy from the beginning.
- Streamlining Onboarding: Develop efficient onboarding processes for new management teams to get to know each other and establish clear expectations.
- Assessing Leadership, Team and Organization: Conduct baseline executive leadership assessments in diligence but assess the team and the organization capabilities to deliver on the strategy as well.
- Convert Your Assessments into Human Capital and Talent Plan: Share your diligence findings with portfolio management and align with them on the human capital and talent plan to close the gaps in the first year of the investment. Make the strategy and human capital plan part of every board meeting for the first 12-18 months and you will be much more likely to realize your investment goals.
To remain competitive and accelerate value creation for their portfolio companies, it is imperative for private equity firms to prioritize their own organizational development. Aligning capabilities, organizational design, and talent with strategic objectives is essential. This mission-critical journey begins with the recognition that private equity firms are, indeed, organizations in their own right, deserving of investment in attention and resources to grow and scale!