Private equity groups can find overlooked value in portfolio companies by investigating the small operational gaps that summary reports hide: completed work waiting to be billed, approvals that stall orders, software licenses no one uses, and decisions that depend on one person's spreadsheet. The opportunity is not to label every inconvenience a transformation project. It is to trace a specific problem to its cause, test a practical improvement, and verify what actually changes.
For operating partners and portfolio company leaders, this approach begins close to the work. Follow individual transactions, talk with the people handling exceptions, and compare records across systems. Then distinguish a recurring earnings improvement from a one-time cash release, additional staff capacity, or reduced operational risk. Those outcomes can all matter, but they should not be counted as the same benefit.
Why overlooked operational value deserves attention
A portfolio review can show revenue, margin, and cash trends without explaining where work is getting stuck. An aggregate measure may hide substantial differences between branches, products, customer groups, or approval paths. The useful question is often: what happens between the events that the dashboard already measures?
McKinsey's discussion of private equity value creation emphasizes operational diligence, clear value-creation objectives, and management responsibility for execution. That is a useful foundation for examining smaller opportunities: connect an observation to a business outcome and give someone responsibility for testing it.
The framework below is a practical diagnostic approach. Its examples are hypothetical, not client case studies, and its suggested investigations are not promises of savings or investment returns.
1. Look between completed work and collected cash
Start with a small sample of completed jobs or delivered orders. Trace each one through approval, invoicing, disputes, and payment. Ask whether the information needed for billing arrives at the same time as the work is completed.
A hypothetical maintenance company might finish a job on Monday but wait until Friday for a supervisor to approve the supporting paperwork. The accounting system may function correctly while the handoff into it remains slow. Replacing the accounting system would miss the actual issue.
Useful evidence includes:
- Completion dates compared with invoice dates.
- Missing customer references, purchase order numbers, or acceptance records.
- Work awaiting approval and the reason for each delay.
- Credit notes, disputes, and repeat billing corrections.
- Exceptions that are handled in personal email rather than a shared process.
Classify the opportunity carefully. Sending an accurate invoice earlier may accelerate cash collection without increasing revenue or earnings. Discovering legitimately billable work that was omitted is a different issue, and its treatment depends on the contract and applicable accounting policy. Have finance validate the result instead of putting both changes into a single savings figure.
A first improvement might be a required completion checklist, a clear approval owner, or a small integration that makes missing information visible. Choose the intervention after identifying the cause.
2. Examine margin leakage inside ordinary transactions
An average margin can conceal exceptions that deserve attention. Review a sample of orders with unusual discounts, repeated expedited shipping, manual credits, or service commitments that differ from standard terms.
The aim is not to remove every exception. Some accommodations protect important customer relationships. Instead, ask whether the exception is intentional, approved, and understood by the people responsible for its economic consequences.
Compare the quoted terms, fulfilled work, invoice, and actual delivery costs where reliable data is available. Check whether additional work was approved but never communicated to billing. Look for prices carried forward from outdated spreadsheets or special terms that no longer have an identified owner.
Separate policy decisions from execution errors. An approved commercial discount is not automatically leakage. A recurring process that applies the wrong price may be. The investigation should help management make informed choices rather than impose a blanket rule that damages customer service.
3. Find capacity hidden in queues and repeated entry
Ask employees which tasks require them to copy information, chase an approval, or check whether another team has acted. Watch the process rather than relying only on a description of how it is supposed to work.
Consider a hypothetical distributor where sales enters an order, operations retypes its details into a scheduling tool, and finance reconciles the two versions. The visible problem is repeated entry. The underlying problem may be an unclear source of truth or an integration that does not handle exceptions.
Measure the frequency of the task, the time involved, the rate of corrections, and the effect on downstream work. If a change removes ten minutes from a task, do not immediately present that time as a reduction in payroll expense. It may create capacity that management can use for additional volume, better service, or other work. A financial benefit requires a credible explanation of how the capacity will be used.
Before automating, decide which decisions require judgment. Preserve a clear route for unusual cases, failed transfers, and corrections. A faster process that silently creates duplicate records can introduce new costs.
4. Review spending that is individually small but poorly understood
Recurring subscriptions, duplicate tools, overlapping support contracts, and unused software seats can be difficult to evaluate when ownership is dispersed. Build an inventory that connects each expense to a business owner, a purpose, usage information, renewal dates, and termination conditions.
Kearney's operational value creation overview identifies procurement, general and administrative operations, IT, and working capital as areas for operational improvement. Its procurement discussion includes creating visibility into supplier and category spending. That visibility is also useful for smaller recurring expenses that receive little individual attention.
Do not cancel a tool solely because usage appears low. It may support an infrequent but essential task, retain important records, or provide a capability needed during an incident. Confirm dependencies and the replacement process first.
For a potential consolidation, consider migration effort, contract timing, training, and the cost of losing a useful feature. Record when a saving will actually start. An intention to cancel at the next renewal is different from an expense that has already stopped.
5. Use differences between portfolio companies as clues
Two companies may perform similar tasks in different ways. One may resolve invoice disputes quickly while another accumulates unresolved cases. One may maintain clear purchasing ownership while another relies on informal approvals.
Treat those differences as prompts for investigation, not proof that the weaker-looking business should copy the other. Customer mix, product complexity, geography, and contractual requirements can make simple comparisons misleading.
Define measures consistently before comparing them. For example, specify when an approval clock starts, what counts as a completed case, and which exceptions are excluded. A shared label does not guarantee a shared definition.
Where appropriate, compare process patterns and aggregated measures before pooling detailed records. Have the relevant owners review contractual, privacy, confidentiality, and competition constraints before sharing sensitive information or combining purchasing activity. Common ownership does not make every form of data sharing appropriate.
The transferable asset may be a checklist, a clear responsibility, or a tested workflow rather than a shared software platform.
6. Investigate knowledge trapped outside core systems
An important process may depend on an employee's private spreadsheet, a folder of email templates, or a set of undocumented naming conventions. These tools can be valuable evidence of a need that the formal system never addressed.
Ask what the spreadsheet does, who relies on it, and what would happen if its owner were unavailable. Identify its inputs, formulas, approval decisions, and downstream users. Do not assume that replacing it immediately is the best response.
Sometimes the appropriate first step is to document the process, assign a backup owner, control access, and establish a review routine. In other situations, a supported application or integration may make the workflow more reliable.
The opportunity here can be continuity and control rather than immediate cost reduction. Record that outcome honestly. Avoid converting every risk reduction into a precise financial estimate when the evidence does not support one.
A practical method for prioritizing the findings
Create a short opportunity record for each observation. Keep evidence separate from assumptions so a promising hypothesis does not become an accepted result through repetition.
Include:
- Observed problem: What happens, how often, and to whom?
- Evidence: Which records or direct observations support the finding?
- Proposed cause: What explanation should be tested?
- Intervention: What is the smallest useful change?
- Outcome type: Recurring earnings, cash timing, capacity, service, or risk?
- Implementation needs: People, systems, costs, access, and dependencies.
- Owner and measure: Who will act, and what will demonstrate improvement?
- Stop condition: What would show that the idea is not worth pursuing?
Prioritize findings with a clear owner, accessible evidence, a manageable intervention, and a meaningful outcome. A modest improvement that can be demonstrated may be a better starting point than a larger estimate built on uncertain assumptions.
Keep a shared benefits record. If reduced rework contributes to both faster billing and additional staff capacity, document the relationship rather than adding two overlapping estimates together. Include implementation and ongoing costs when assessing the result.
When software helps—and when it adds unnecessary work
Software can help when an established process needs reliable information exchange, clear permissions, repeatable checks, or better exception visibility. It is less useful when the real obstacle is an unresolved policy or a missing decision owner.
Before proposing a custom application, examine whether an existing system can be configured differently or connected to another tool. Define one workflow, its exceptions, and its acceptance criteria. Then compare the available approaches.
For a more detailed evaluation process, see Blake Technologies' guide to choosing custom software for your business. The same questions about requirements, ownership, integrations, and ongoing support apply to portfolio company projects.
A useful pilot should preserve operational visibility. Staff need to know whether a request succeeded, which cases need attention, and how to recover from a failure. Otherwise, a new tool can move the work into a less visible queue instead of eliminating it.
Run a focused discovery cycle
A short discovery cycle can turn the investigation into a manageable operating activity. Adjust the timing to the business rather than treating the following sequence as a guaranteed delivery schedule.
First, choose one workflow and establish a baseline. Review representative records with the people doing the work. Identify where measurements are incomplete and agree on how to fill those gaps.
Next, test the cause. Follow exceptions back to their source. Confirm whether the delay comes from missing information, an approval rule, system behavior, or a commercial decision. Avoid selecting a technology before this step is complete.
Then, pilot a limited change. Choose a group or transaction type that allows the team to observe the result without disrupting the entire business. Set a review date and define how to reverse the change if it causes problems.
Finally, validate the outcome. Compare results with the baseline, accounting for changes in volume, customer mix, staffing, and seasonality where relevant. Ask finance to review financial claims and operations to confirm that the process remains workable.
Expand only when the evidence supports it. A pilot that fails to demonstrate value can still be useful if it prevents a larger commitment to the wrong solution.
Start where the work becomes hard to see
Overlooked portfolio value is often a question of visibility and ownership. Find the handoff no report explains, the exception everyone works around, or the recurring expense nobody can confidently describe.
The goal is to create a repeatable way to notice these issues, test their causes, and verify improvements. Begin with one workflow, one accountable owner, and one defensible measure. That gives the portfolio team a stronger basis for deciding what to improve, what to replicate, and what to leave alone.
Illustrative photography from Unsplash: collaboration, analytics, and software development. These images do not depict Blake Technologies employees, portfolio companies, or client results.