What can large corporations learn from PE-run companies?

It's typically the norm for wisdom to flow downstream—from seasoned executives to the up-and-coming and aspiring leaders. Similarly, in the corporate sphere, the long-established blue-chip giants stand as the paragons of success, shaping the ambitions and strategies of smaller entities looking to scale their operations. Having the vantage points of seeing both worlds up close, I wondered: Might the titans of industry have something to gain from the focused strategies of private equity companies?

With a reputation for stellar returns and strategic agility, private equity firms operate with a precision that drives speed and efficiency—qualities any large corporation would covet. My journey into this inquiry led me to an interesting discussion with Kevin Tucker, Executive Strategy & Growth Leader, who has spent the last decade of his career working with various Private Equity funds on implementation of their value creation strategies.

In our discussion several key advantages that could be harnessed by larger organizations emerged:

Heightened Sense of Urgency

A core tenet of PE success is a close alignment between management and investors on the value creation plan to achieve the required Internal Rate of Return (IRR). There's an embedded sense of urgency that is exponentially higher than in large corporates, with the ticking clock of the investment horizon always in the background.

What could Large Corporates Adopt: Teach all employees to embrace the mindset that time literally equals money and drive a culture where everyone`s time is highly valued from top to bottom. Reward those who can accomplish more in less time without compromising quality or damaging relationships. Reward those who introduce technologies that save time for many, and those who are known for being highly efficient and able to cut through the bureaucracy. Discipline and coach those who tend to waste time and resources especially leaders whose management decisions lead to wasted productivity or lead to less than desired outcomes.

Trust at the Helm

Perhaps the most significant success factor is the high level of trust between the general partner (GP) and the CEO. If trust is lacking, friction permeates through the ranks, creating inefficiencies and morale issues that can derail the value creation strategy.

What could Large Corporates Adopt: Cultivate a culture of trust starting from the top. When leadership demonstrates trust and clear communication, it sets the tone for the rest of the company, reducing friction and aligning on shared goals.

Human Capital as a Differentiator

The human capital of PE-run companies is a critical differentiating factor of success. It begins with the quality of the management team and extends to those who hands-on make the value creation strategy come to life. PE firms recognize the strong talent-to-value connection and are meticulous in nurturing this aspect.

What could Large Corporates Adopt: Invest in your people. Ensure that the management team is top-notch and that every employee understands and is rightly equipped to execute their critical part of the value creation strategy. Recognize and foster the direct relationship between talent development and business value.

Lean Operations

PE firms operate with a no-frills approach, running things incredibly lean with no room for excess, particularly when it comes to human productivity and the use of company resources. They understand that operational "fat" not only costs money but also slows down decision-making and execution.

What could Large Corporates Adopt: Conduct regular reviews to identify and trim operational excess. Streamline processes and empower your workforce to ensure that productivity is at its peak and resources are utilized effectively and deployed efficiently.

In summary, some large corporations can benefit to learn from the playbook of private equity. Through strategic alignment, fostering trust, valuing human capital, and maintaining lean operations, they can infuse their structures with the agility and focus of their smaller, PE-run counterparts. These lessons are more than mere tactics; they are a call to revitalize corporate culture, strategy, and operations in a way that positions such giants to not only compete but also to set the pace in a fast-evolving business landscape. As we gaze into the future of corporate growth, the integration of these principles might very well be the defining factor between those who lead and those who follow.