The success of private equity (PE) funds remains one of the great mysteries of modern finance. These funds simply buy and sell companies, yet the acquired firms consistently outperform their pre-acquisition state. Why? According to Chris Gagnon, a senior partner at McKinsey, the answer is remarkably simple and has nothing to do with flashy strategies or enormous cash injections.
The mathematical mandate
The singular difference is that PE funds are ruthlessly clear about their value-creation plan.
This plan is not a vague, aspirational “strategy”—it is a quantifiable, mathematical mandate. PE funds focus relentlessly on breaking down the return on investment (ROI) into measurable, actionable components.
For example:
“We buy a company for USD 2 billion. We intend to sell it for USD 5 billion. Where will the USD 3 billion in added value come from?“
This question generates a detailed, 10–12 page list (akin to a rigorous set of OKRs) that everyone in the organization understands.
- Sample breakdown: The USD 3 billion increase must be broken down: USD 1.5 billion from M&A activities, and USD 1 billion from organic growth. Within organic growth, USD 300 million must come from Segment A, and USD 700 million from Segment B. Segment B requires hiring 4 senior leaders and 20 engineers.
The power of absolute clarity
Gagnon notes a core human truth: If you want people to work well and efficiently, you must tell them exactly what is required of them. When the goal is defined with absolute clarity, employees instinctively know how to optimize their efforts to achieve it.
This principle is vital for the education sector. We must avoid abstract, flowery terms like “nurturing grit in Alpha students” or “internationalizing Phú Xuân University.”
Instead, objectives must be concrete, measurable, and actionable:
| Abstract goal (Ambition) | Concrete, measurable OKR (Mandate) |
| “Develop talented students at Newton School.” | “Newton School must achieve 30 city-level, 10 national, and 3 international academic awards.” |
| “Build Viet My College into a leading institution.” | “Increase Viet My College student enrollment from 3,000 to 5,000 students within the next 18 months.” |
| “Internationalize Phú Xuân University.” | “Recruit 20 non-Huế faculty members, including 5 international lecturers.” |
| “Nurture grit in Alpha students.” | “80% of Alpha students must complete a 5 km run in the annual fitness challenge.” |
The secret to private equity’s success is not magic. Strategy is simply a set of actions that are specific, effective, clear, tangible, measurable, and visible.
