Private equity doesn’t have a value creation problem.

Capability and execution within the portfolio company is the problem.

Private equity is getting increasingly sophisticated at identifying where value should come from within the portfolio company.  The harder question is whether the portfolio company has the capability to deliver it, and this distinction really matters.

Alvarez & Marsal’s latest “Operational Alpha” report shows how significantly the private equity value-creation model continues to change.

Of the European PE exits through to 2022, 78.5% of EBITDA growth came from topline improvement and only 21.5% from operational excellence.

Subsequently, of the businesses that exited in 2025, operational excellence accounted for 51%.

At the same time, 83% of respondents expect working capital to become more important as a value creation lever, 81% say organic revenue growth, and 68% identify pricing as a priority revenue initiative.

PE firms are also moving earlier. 58% now deploy value-creation resources predominantly within the first 100 days or first year of investment, compared with only 29% the previous year.

That tells us

something important.  More of the investment case now depends on what actually happens inside the business, and that is where things get difficult.

The investor may change the thesis. The portfolio company still has to execute it.

Most value-creation plans are perfectly rational:

• Improve pricing

• Increase sales productivity

• Release working capital

• Reduce cost

• Improve customer retention

• Make better use of data

• Introduce AI

• Professionalise the organisation

None of those ambitions are unreasonable.  The problem is that they do not arrive inside an empty organisation.  They land in a business that already has customers to serve, numbers to hit, people stretched across multiple roles, systems that may not talk to each other and management teams already running at capacity.  This tends to be underestimated by both the investors as well as the portfolio executives.

A value-creation plan may be created at investor or board level, but execution happens in the portfolio company, and the quality of that execution depends on the operating reality already there.

Capacity and capability are the real constraints

This is one of the most revealing parts of the A&M report.

65% of respondents say less than 50% of the value in plans developed over the previous two years has been fully realised.

The two biggest barriers identified are capacity and talent gaps, cited by 41%, and specialist capability gaps, at 37%.

That is not necessarily a strategy problem, often an organisational capability problem:

• You can have the right strategy, but the wrong capacity and experience to execute it

• You know pricing needs to improve, without having reliable customer profitability data

• You can decide sales productivity needs to improve, without having a CRM that gives management an accurate or trusted view of the pipeline

• You can target working-capital improvement while Finance, Sales and Operations are optimising for different outcomes

• You can identify AI opportunities without the data, processes or ownership required to make them feasible

• You can launch multiple initiatives, that collectively overwhelm the same team required to deliver all of them

The issue is often not knowing what to do, it’s nurturing an organisation capable of doing it.

More activity is not always the answer

When performance is behind plan, the instinct is often to add:

• Another workstream

• Another dashboard

• Another adviser

• Another steering committee

• Another initiative layered on top of everything already under way

Sometimes that is necessary, often the business just needs the right activity and more clarity:

• Clear priorities

• Clear ownership

• A common view of the numbers

• A realistic sequence

• Visible dependencies

• Decision-making that does not disappear into committees

• An operating rhythm that tells management quickly when something is not working

Adding more activity to an organisation that already lacks capacity can make execution harder, not easier.

Execution has to be designed, not assumed

Execution is not the final stage of strategy; it needs to be designed and embedded into it.

That means asking different questions at the beginning.

• Does the management team genuinely have the bandwidth ?

• Where are the capability gaps ?

• Who is accountable across functions ?

• Is the data good enough to manage performance properly ?

• Do the systems allow the company to operate effectively ?

• Are incentives aligned ?

• Which initiatives depend on each other ?

• What needs to happen first ?

And just as important, “What are we going to stop doing ?”, because prioritisation is not separate from execution; it is intrinsically part of it.

A business cannot do everything at once simply because every initiative looks sensible on a slide. Someone has to make choices.

This is bigger than private equity

The A&M evidence is specifically about private equity, however, the operating issue is broader.

We see the same tension in venture capital-backed and founder-led companies when they reach an inflection point. The circumstances differ, but the pattern is familiar:

• The business has grown

• Expectations increase

• The next stage requires

  • more predictability

  • more control

  • more commercial discipline

  • more repeatability

  • more responsibility

  • more accountability

  • better communication

The existing leadership team is told to scale sales, improve retention, strengthen margins, professionalise reporting, hire better, introduce new systems and build a management layer.

Whilst each of these things individually makes sense, collectively they often expose the fact that the way the organisation has operated until now is no longer enough.  What got the business here cannot necessarily get it through the next phase.

That is the point at which growth problems start to look like sales problems, technology problems or people problems, when the deeper issue is often the operating model:

• Ownership is blurred

• Processes have grown organically

• Systems reflect yesterday’s business

• Management information arrives too late

• Executives are dealing with challenges and relationships they have not encountered before

• There is no single source of truth.

The organisation has become more complex, faster than its existing capability to manage that complexity and change.

This is as relevant to a £5m founder led company trying to professionalise as it is to a £50m private equity portfolio company under pressure to deliver a value creation plan.

Value creation is becoming an organisational capability

The significance of this shift is not simply that investors are focusing more heavily on operations, it is that returns increasingly depend on the company being capable of sustained and continuous operational improvement.

That changes the conversation around the boardroom table.  The question is no longer only “Where is the value ?”, but will now also include “What has to be true inside this organisation for us to realise it ?”

That means looking beyond the spreadsheet.

• Leadership capacity

• Accountability

• Data

• Processes

• Systems

• Commercial discipline

• Cross-functional ownership

• Management cadence

• The ability to make decisions and act on them quickly

The investors and board may define the ambition, but the portfolio company still has to convert that ambition into practical decisions and actions within the confines of the capability that exists inside the organisation.

That is why my takeaway from the A&M report is not that private equity needs better value-creation plans.  It is that “value creation increasingly depends on building organisations capable of executing them.”

The same is true well beyond private equity.  A strategy can tell you where you want the business to go.  The operating model determines whether it can actually get there.  At the crucial inflection point, that difference matters enormously.