When it comes to improving a process or closing a performance gap, most businesses jump straight to the “to be” or future state business process.  We’ve lived with the process gap long enough so why do we have to suffer any longer?  

Except process improvement should never be tied to emotions.

You’ll do significant damage to your private equity firm and portfolio companies by breaking the link between the 8 standard process wastes causing choke points in your process because the waste is the only thing tying back to your business case defined, using the first step of DMAIC.

We’re still using the same process for our case study based on the internal rate of return (IRR) process performance gap reported by Bain’s 2017 Annual Global Private Equity Report:

21.1 (target set by top quartile firms and public market) – 15.2  (average PE firm IRR) = 6 net IRR (Gap)

This gap is a measurement of how well this process is performing, not how well people are performing.  We drilled into 2 choke points in the high-level process map by drilling to get this more detailed process:


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With this detailed view, we identified process wastes and root caused them to understand how to turn them “off”.  The next phase, Improve, in DMAIC, we split into two parts.  The first part and most important – quantifying the improvement opportunity or return on investment.


Part 1: Higher ROI with Process Improvement


Lean Six Sigma focuses on constraints because when you constrain, you get creative.  We constrain time because time is money and we don’t allow money to solve problems.  This does two things for your return on investment:

  1. Short-Term:  Minimizes investment so you have a lower hurdle for ROI when you close the process gap.
  2. Long-Term:  Teaches individuals that money and time don’t solve problems because process waste created the problems.  Therefore remove the process waste.

Most companies fail here because they bite off too much.  This isn’t a diet, it’s a lifestyle change so focus on building long-term habits which sustain longer than your competition’s innovation.

How is Process Waste Killing Your Bottom-Line


There is no alternative to Lean Six Sigma because it’s the only methodology that focuses on removing process waste.  To achieve operational excellence, we have to find this waste because it prevents our business from being truly scalable.

In the example of our process, we’ve already found the waste but we don’t know how much it’s costing us.  We touched on this in the first post and here’s where we get our hands dirty.  In order to quantify what it’s costing you, you’ll need to:

  1. Observe process live and perform time studies
  2. Grab data from your CRM or deal pipeline to quantify lead time

For the purpose of our IRR case study, we quantified our process waste as:

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The most critical part of removing waste is to realize that bottlenecks are just process steps with the most waste.  Once you’ve removed the waste and improved a bottleneck it just moves to another step in the process.  Which is why it’s called continuous improvement.


How We Scale Business Processes


To truly understand your ROI you’ll need to which how you’ve scaled your process.  We set the process performance gap as 6.0 IRR but what does that mean exactly?  Scaling a process means you’ve improved one of two things:

  1. Process lead time
  2. Process end result quality

If we’re measuring how long a potential investment takes to go from being sourced to grown, this is your total process lead time.  Lead time data shows you how efficient you are at doing the process.  If you’re increasing the percentage of opportunities invested in starting from investment sourcing to growth, this KPI measures the quality of your process.  

You’ll want to invest time into some good financial analysis for this phase because ROI has to be tied directly to a financial statement line item, most likely your statement of operations.  Not sure which line items are tied to your process gap?

The below example demonstrates how the total waste – once removed – may free up your cash flows and provide incremental growth in your bottom line:

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Private Equity Software


Since good software is just a process designed with the goal in mind, you’ll need a business process or tool to:

  • Process mapping (we use Lucidchart but you can get away with post-its)
  • CRM (or deal pipeline data to show the activity level detail your deals flow through)
  • Accounting software (pull your financial statements)
  • Excel or Google sheets

Better Tomorrow Than Today


The best Lean Six Sigma teams can remove waste within 24 hours of identifying it.  This is because the waste is totally under your control. Here’s why – because you created it.  This is the good news because you didn’t know it was there but now that you do.

Most likely you’ll need the help of other team members or stakeholders so get them on the same page with you by showing them your business case and ROI for their time.  You’ll be ready to start implementing your improvement plan in time for our next post: part 2 of Improve.

Ashley Asue Guerrilla Analytics Private Equity Consultants
At 26, she was asked to create a new department to grow their Fortune 300 company using Lean Six Sigma continuous improvement.
While working with consultants and experts, she saw a common thread among their challenges and failures.
With this insight, she created a custom process to create a high-performance company.
As the only CPA and business architect in the US, she helps others use creativity instead of cash to efficiently build their businesses.