Private equity operations break when deal teams treat management presentations, summary metrics, and strategic plans as proof that the business can execute. Operational due diligence closes that gap by testing systems, processes, data, ownership, and front-line capacity before assumptions become commitments.
You can build a sound investment thesis and still inherit a company that cannot support the value creation plan. The problems often sit below executive reporting: manual reconciliations, undocumented workflows, aging systems, supplier dependencies, weak data controls, and managers carrying knowledge that exists nowhere else. Finding those conditions early helps you price risk, set priorities, and build a 100-day plan grounded in how the company actually works.
Why Do Private Equity Value Creation Plans Fail?
Value creation plans fail when their operating assumptions don’t match the company’s ability to execute. A target can look achievable in a financial model yet require systems, skills, data, or management capacity that the business doesn’t have.
Private equity (PE) teams often begin with reasonable goals: increase revenue, expand margins, consolidate vendors, improve pricing, or automate administrative work. Problems arise when the plan assumes clean customer data, consistent processes, available staff, and reliable reporting. If those conditions haven’t been verified, the plan starts with hidden dependencies and unrealistic timing.
The gap resembles what business strategist Nilofer Merchant called an “air sandwich.” Senior leaders define strategy at the top, front-line employees perform the work at the bottom, and the execution layer between them remains thin or disconnected. In a portfolio company, that gap can leave middle managers translating broad targets into daily work without enough authority, resources, or usable information.
Operational value creation matters because returns cannot depend on financial engineering or multiple expansion alone. PwC’s private equity value creation material emphasizes revenue growth and margin improvement as important sources of value. Those gains require operational changes that people can implement, systems can support, and management can measure consistently.
Why Is Financial Due Diligence Not Enough?
Financial due diligence tells you what the company reported and how its earnings were constructed. It doesn’t automatically tell you whether the processes producing those results are stable, scalable, or repeatable.
Earnings before interest, taxes, depreciation, and amortization (EBITDA) can hide operational fragility. A company may protect margins through employee overtime, delayed maintenance, temporary vendor concessions, or manual work performed by a small number of experienced people. Those practices can sustain reported results for a period, but they may not survive growth, integration, or leadership turnover.
You also need to test how financial information is created. Revenue, inventory, labor, and customer profitability reports may be assembled through spreadsheets pulled from several systems. If employees manually adjust the numbers before executives see them, reporting speed and accuracy depend on individual knowledge rather than controlled processes.
Operational due diligence (ODD) connects reported performance to the work behind it. You trace selected metrics from the executive dashboard back to their source systems, process owners, and control points. That allows you to distinguish a strong operating model from a business that produces acceptable numbers through workarounds.
What Gets Missed When Teams Stay Too High-Level?
High-level reviews tend to miss technical debt, weak data hygiene, process variation, informal controls, and hidden dependencies. These issues rarely dominate a management presentation, yet they often determine whether the value creation plan can move at the expected speed.
Information technology (IT) is a common blind spot. A presentation may describe an enterprise resource planning (ERP) platform as fully implemented, but different locations may use separate configurations, spreadsheets, or older applications for daily work. The platform exists, yet the business still lacks a single operating process or dependable data set.
Technical debt creates a similar problem. Aging applications, custom integrations, unsupported tools, and undocumented code can make routine changes expensive and slow. McKinsey’s work on technical debt describes how accumulated technology shortcuts can consume resources that would otherwise support new capabilities and business priorities.
Supply chain summaries can hide risk as well. A company may know its direct suppliers but have little visibility into lower-tier manufacturers, material sources, or geographic concentrations. Reviewing the top ten vendors by spending won’t expose every production dependency, especially when a low-cost component can stop delivery of a high-value product.
Why Do Operational Problems Surface After Acquisition?
Operational problems often surface after acquisition because the transaction introduces pressure that existing workarounds cannot absorb. New reporting demands, growth targets, integrations, cost reductions, and leadership changes expose weaknesses that were manageable under the previous operating rhythm.
Revenue leakage can appear when you inspect pricing execution below the average selling price. Sales teams may apply inconsistent discounts, overlook contract increases, fail to invoice add-on services, or extend credits without a standard approval process. Summary revenue reports won’t show the full pattern unless you review customer, contract, invoice, and stock-keeping unit (SKU) data together.
Bottlenecks also become visible when the company attempts to grow. A warehouse may meet current demand through extra shifts and manual inventory checks, yet fail when order volume rises. A customer service team may depend on one employee who knows how to correct billing errors, creating a single point of failure that no organization chart reveals.
Technology programs carry the same execution risk. McKinsey’s digital transformation research found that fewer than one-third of surveyed transformations achieved and sustained expected improvements. The difficulty often sits in adoption, operating practices, talent, communication, and implementation discipline rather than the ambition stated in the strategy.
Who Must You Interview Beyond The Executive Team?
You need to interview the people who own processes, repair failures, reconcile data, and handle exceptions. Executives explain how the business is designed to run; middle managers and front-line employees show you how it runs under real operating conditions.
Plant managers can tell you whether production targets depend on deferred maintenance or weekend labor. Controllers can explain which reports require manual adjustments. IT administrators know where integrations fail, and customer service leaders can identify recurring complaints that haven’t reached the executive dashboard.
These conversations should focus on workflow rather than opinion. Ask people to walk through the last delayed order, failed system update, inventory discrepancy, customer credit, or production interruption. Request the files, screens, approvals, and handoffs used to resolve it, then compare that evidence with the documented procedure.
You should also look for knowledge concentration. If one manager understands the pricing model, one developer maintains a core application, or one planner controls supplier allocations, the company carries key-person risk. The issue isn’t the employee’s competence; it’s the absence of documented, transferable operating knowledge.
How Do You Conduct Ground-Truth Operational Due Diligence?
Ground-truth operational due diligence tests how work moves through the company from request to completion. You combine management interviews with process walkthroughs, system evidence, transaction data, exception reviews, and direct observation.
Start with the processes tied to the investment thesis. If growth depends on faster onboarding, trace a customer from signed contract through setup, delivery, invoicing, and support. If margin expansion depends on procurement, compare purchase orders, contract terms, invoice prices, approval rules, and actual buying behavior.
Process mining can help when system event logs are available. It reveals how transactions flow through applications, where work pauses, how often employees bypass the standard path, and which exceptions create repeated delays. The output should support interviews and walkthroughs rather than replace them, since system logs may omit offline steps and spreadsheet-based work.
Shadowing adds another layer of evidence. Watching an employee process an order, schedule production, close the books, or resolve a service issue can expose duplicate entry, missing integrations, unnecessary approvals, and informal quality checks. A short observation period often produces questions that never emerge in a conference-room interview.
You don’t need to inspect every operational detail before signing. Prioritize the processes that drive revenue, cash, customer retention, production continuity, regulatory obligations, and the value creation plan. Go deeper where failure would change the valuation, transaction terms, integration plan, or required capital expenditure.
How Should Operational Findings Shape The 100-Day Plan?
Operational findings should turn the 100-day plan into a sequenced set of actions with named owners, verified dependencies, measurable outcomes, and realistic resource requirements. Broad goals need to become operating decisions that teams can execute without guessing.
Separate urgent stabilization work from longer-term improvement. A failing interface between order management and billing may require immediate attention, whereas replacing the full ERP platform could require a longer program. Treating every finding as a major initiative overwhelms the organization and hides the few issues that pose the greatest risk.
Link every initiative to a baseline and an operating measure. A working-capital goal should connect to inventory accuracy, purchasing rules, production planning, payment terms, and collections activity. A margin target should connect to pricing compliance, labor productivity, waste, freight, product mix, or another measurable driver.
Ownership also needs to sit close to the work. An operating partner can sponsor a program, but the manager responsible for the process must have decision rights, time, staffing, and access to accurate data. Bain’s work on the strategy-execution gap stresses the need to convert strategic priorities into coordinated action across the organization.
Review the plan when ground-level evidence changes an assumption. If customer records require months of cleanup before a pricing program can launch, reflect that dependency in the schedule and return model. A credible value creation plan shows what must be fixed, what can proceed now, and what evidence will confirm progress.
Why Do High-Level Private Equity Teams Miss Operational Breakdowns?
- They trust management data without checking front-line reality.
- They overlook technical debt and system limits.
- They skip middle and front-line staff.
- They mistake strategy for process execution.
See The Business At The Level Where Value Is Created
Strong private equity operations require you to connect the investment thesis with the systems, decisions, and daily work that produce results. Financial models remain useful, but they cannot verify whether data is trustworthy, processes can scale, or managers have the capacity to deliver the plan. Ground-truth diligence helps you identify hidden capital needs, execution constraints, revenue leakage, and integration risk before they erode EBITDA. When you inspect the forest and the trees, your 100-day plan becomes more practical, your priorities become clearer, and your value creation targets rest on evidence rather than presentation quality.
References
- PwC: Private Equity Value Creation
- McKinsey & Company: Unlocking Success in Digital Transformations
- Bain & Company: Bridging the Strategy-Execution Gap
- Harvard Business Review: Don’t Create an Air Sandwich
- Deloitte: Operational Due Diligence.
Barry Bekkedam is an entrepreneur and finance executive focused on investment management and advisory. A former Villanova standout and member of Canada’s men’s national basketball team, he now leads ventures in asset management and philanthropy, including the Barry Bekkedam Foundation supporting education and community development.