Private Equity’s ‘Value Creation’ Gap: Lee McCabe Highlights Operating Model Deficiencies

In a recent LinkedIn post, Lee McCabe delves into a critical issue within the private equity (PE) sector: the disconnect between the perceived value of “value creation” teams and the underlying operational systems that should support them. McCabe argues that many PE firms have prioritized acquiring the job title of ‘value creation’ or ‘operating partner’ without implementing the necessary operational frameworks, leading to stalled progress and prolonged investment cycles.

McCabe shares a candid piece of feedback he received privately, which illustrates this systemic flaw. The anonymous message, shared with permission, highlights a common observation among industry professionals.

“Appreciated your post on the current talent collecting at PE firms. I’m seeing and meeting with loads of these new operating partners, heads of value creation, and I realize none of them are actually doing anything.

When I was job hunting I was pitching PE firms to build out the structure and systematize the value creation process… They looked at me blank stared. And then I realized these ‘titans of industry’ with more money than God were just collecting PortCos, waiting a few years, and offloading them.

Buying ‘good management teams’ and letting them ride. No inherent value creation except maybe some back office synergies that are hard to unwind come sale time.

Anywho. Rant over. Appreciate your posts!”

This feedback, according to McCabe, encapsulates the core problem. He reiterates this point, stating, “That’s the whole issue. It’s not a people problem. It’s an operating model problem. Too many firms hired the function before they built the machine.”

The Systemic Flaw in Value Creation

McCabe elaborates on how the absence of a robust operating model transforms the concept of value creation into a mere formality. He contends that without a defined system, clear ownership, established cadence, proper instrumentation, and a consistent weekly operating rhythm, value creation initiatives devolve into unproductive activities.

As Lee McCabe notes, if “value creation” cannot be articulated as a structured system, the results are predictable and often disappointing. The post suggests that this leads to a cycle where:

• Meetings become the primary output.
• Decks are created without tangible action.
• Polite agreement replaces genuine progress.

This situation, McCabe implies, leaves portfolio companies overly reliant on the individual capabilities of their CEOs, rather than benefiting from a systematically supported growth strategy. This dependence can lead to extended holding periods and increased complexity during divestment.

The Illusion of Operating Partners

McCabe’s analysis points to a broader trend where the ‘operating partner’ or ‘head of value creation’ role has become a fashionable addition to PE firm structures, but often without the foundational operational infrastructure to support it. The anonymous feedback highlights a stark contrast between the perceived expertise of these hires and their actual impact on portfolio companies.

“The funniest bit is the best feedback I get isn’t in the comments. It’s in my DMs. People say the quiet part out loud when there’s no audience.”

McCabe uses this observation to underscore that the most candid critiques often come through private channels, suggesting a reluctance to voice systemic concerns publicly. He believes these insights, like the one shared, are crucial for understanding the real challenges facing the industry.

Ultimately, Lee McCabe’s post serves as a call for a more rigorous approach to value creation in private equity. He urges firms to focus on building the ‘machine’ – the operational systems and processes – before or in parallel with hiring the ‘people’ to run it. Without this fundamental shift, the promise of proactive value creation risks remaining an elusive ideal, characterized by meetings and presentations rather than measurable, systemic improvements.