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Beyond the Quick Win: Building Lasting Value Through Cost Optimization

Cost optimization is a proven private equity (“PE”) value-creation lever, but many firms capture short-term savings without achieving long-term transformation. Results from a survey reflected in FTI Consulting’s 2026 Private Equity Value Creation Index indicate that 39% of cost optimization initiatives experience mixed or difficult execution, underscoring a persistent challenge for PE firms investing in healthcare.¹ These responses highlight that lasting value creation depends on disciplined execution. Sustainable results require an integrated approach across three key areas: embedding cost containment into everyday governance, redesigning workforce models around productivity and demand, and strengthening supply chain performance through strategic sourcing and working-capital management. Together, these levers can turn cost optimization into a scalable capability that supports strong margins and long-term value creation.

Cost Containment as an Operating Discipline

For PE firms, sustaining cost savings over the long term is primarily an operational challenge. Firms are generally effective at identifying cost opportunities early in the investment period, yet maintaining those savings proves more difficult. Without clear approval rights, budget ownership and spend visibility, savings erode quietly after the initial reduction effort is finished. Spend governance and general and administrative expense (“G&A”) optimization help to close this execution gap.

Spend governance addresses how dollars are committed, approved and challenged. G&A optimization addresses how overhead grows when functions lack clear ownership or targets. The same gaps surface in nonlabor spend and technology, where fragmented ownership, automatic renewals and underused tools create significant and often underexamined cost exposure across purchased services, professional fees, software licenses and recurring vendor contracts.

These challenges intensify in multi-entity or post-acquisition environments, where legacy roles, duplicated vendors and parallel processes can remain embedded long after a transaction closes. Sustainable cost containment requires clear decision rights, functional ownership and accountability, supported by routine management engagement that keeps savings visible after the initial reduction is captured.

Improving Workforce Effectiveness

Spend governance creates accountability over where dollars are spent, and the same execution discipline must extend to how work is performed. Sustainable workforce cost optimization begins with a clear understanding of which activities create value and where work can be simplified, automated or eliminated. Across healthcare, redesigning clinical and non-clinical operations, back-office administrative functions, customer-facing workflows and reporting processes can improve productivity and lower unit costs while preserving the capabilities, service quality and customer experience that support long-term performance.

With a more efficient operating model in place, management teams can make better-informed decisions about workforce size, skill mix and where work should be performed. Some capabilities may remain within business units, while others can be delivered through shared services, centers of excellence, global delivery teams, automation-enabled models, or external partners. The objective is not simply to reduce labor expenses, but to create a workforce model that responds to demand, minimizes duplication and scales with the business.

Unlike one-time headcount reductions, this transformation requires sequenced operational and organizational change. Survey respondents report that measurable workforce improvements often emerge within seven to twelve months, highlighting the importance of clear ownership, measurable outcomes, and repeatable implementation playbooks.²

Strengthening Supply Chain Performance

Operating discipline must also extend to the supply chain, one of the most underleveraged sources of value in the cost optimization approach. Many portfolio companies enter the investment period with procurement relationships that have gone unexamined, contracts that have lapsed into automatic renewal and inventory levels calibrated to habit rather than actual demand. Capturing this value requires moving beyond reactive vendor management toward a disciplined, proactive approach.

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Strategic sourcing begins with spend transparency, particularly by identifying where pricing has drifted through sole-source arrangements, lapsed contracts and categories for which a competitive bid process has not been run in years. Introducing competition through supplier consolidation and structured bidding shifts the dynamic from passive acceptance of vendor pricing to active cost management. The objective is not a one-time discount but a durable commercial arrangement.

Multi-year agreements are one of the most effective tools for cementing that durability, as they create a structured exchange that benefits both parties. Suppliers gain revenue predictability and planning certainty, enabling them to plan resources more effectively and invest with confidence. In return, the business secures committed pricing that reduces exposure to market volatility and builds performance accountability into the contract itself.

Beyond sourcing, working capital optimization offers another opportunity to capture value by improving how cash moves through the business while applying the same principle of eliminating inefficiency.

As with the other levers in this framework, these gains cannot sustain themselves. Realizing strong and lasting value from supply chain requires improvements to be embedded in the organization’s standard practices rather than treated as a one-time initiative.

Sustaining Cost Optimization for Long-Term Value

Sustainable cost optimization in healthcare requires treating execution as an ongoing operating discipline, not a collection of isolated initiatives. Companies that capture durable value pair cost identification with clear ownership, defined decision rights, and recurring management routines needed to sustain performance long after the initial reduction is complete.

Across spend governance, workforce effectiveness and supply chain, the pattern is consistent: strategy identifies the opportunity, but disciplined execution determines whether it holds. PE sponsors that institutionalize this discipline build leaner, more resilient businesses without compromising the capabilities or patient experience that drive long-term enterprise value.

Footnotes:

1: “2026 Private Equity Value Creation Index”, FTI Consulting (June 2026).

2: Ibid.

The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.