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Many times value creation strategies are specific to a particular company; they can be based on industry dynamics or take advantage of market changes for example.  PE firms are excellent at identifying these strategies and creating value based on them, the PE business model depends on it and so does their carry.  What about the opportunities for creating value across a portfolio of companies and how can a PE firm take advantage of them.

There are a few ways to look at cross portfolio value creation.  The key is to identify the common denominator across the companies and to leverage that denominator so it generates value.  Many firms do this already in a single source model that is dependent on internal resources and bandwidth.  A distributed model is more effective at scaling however I’ve only seen a few firms use it and only in one area.  Depending on the portfolio of companies the common denominator could be based on the following.

–          Industry

–          A line of business like manufacturing, procurement, or supply chain

–          A business area like CEO, CFO, or CIO

–          Others…?

Industry and line of business are very similar.  They have obvious common denominators and strategies.  This is also where most PE firms are focused and leveraging a single source model.  PE firms predominantly have deal teams and/or operating partners with extensive industry or functional expertise that are responsible for transferring knowledge across the portfolio.  Simplistically, they dive into a company, build the 100 day plan with management, monitor execution to the plan, and then leverage that knowledge into the next portfolio company.  The significant downfall of this approach is that only the current engaged company is benefiting from the PE firm’s input.  Why not leverage a distributed model where there is a common denominator and drive value by spreading the learnings and challenges across the portfolio.  

I’ve seen only a few clients take a distributed approach and only in one area, the office of the CIO.  The CIO is a natural selection; they share similar challenges regardless of industry and when leveraged strategically can drive significant value for the business.  For example, consumerization of IT, bid data, and social media are just as relevant challenges and opportunities for retail and consumer businesses as they are for an oil & gas, healthcare, or technology company.  By effectively connecting the CIOs across a portfolio they can share learnings, best practices, and challenges while building a network that can yield a significant competitive advantage.  The firms I’ve worked with that do this well and see a benefit connect their CIOs in person bi-annually in a forum with thought leaders to share their insight.  They also take time during the sessions to present case studies within the portfolio to engage the CIOs in relevant discussions. 

So what are the other areas that can benefit from a distributed knowledge sharing approach?  There are obvious ones like procurement and lean.  What about innovation or sustainability?  Which areas are more effectively driven directly by the PE firm vs the portfolio companies themselves?


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