I had the opportunity to observe dozens of PE operators guide projects in their portfolio. I believe there are lessons from the relentless value focus of private equity that can make our digital projects better. So here is what I learned from PE about running more impactful transformations
#1 MAKE IT REAL
We need to bring our digital vision down to earth. Nobody really understands what Digital Means to them. We need to let the executive team experience what will be different. It could be by visiting a digital native disruptor in the industry, demoing actual capabilities, showing competitive benchmarks, and so on. We also need to have personalized outcomes for each key executive area – showing how the digital is driving measurable change in Customer Satisfaction, Revenue Conversion, Cash, Cost, Speed, Talent Development
It is also critical to define the art of the possible in financial terms not just in passionate technology vision. That should include the definition of what is the maximum value potential achievable. The best digital initiatives make it real by focusing on both revenue growth and cost-efficiency.
#2 DO FEW PROJECTS WELL
PE investors taught me to take only a few big bets and do them well. Often companies take endless small bets that don’t actually move the needle. I think that is why we have so many proofs of concepts and pilots in digital. The focus should be on tangible financial results, not technology aspirations Digital programs should have a short term focus to generate value – max 2 years. Project progress needs to be highly visible and measurable, preferably at the board level. And we need to make it personal: SLT members need to own each initiative or they should not be done.
#3 HAVE BIAS FOR ACTION
Time truly is money. We need to have a sense of urgency or create it. It is Finance 101 that the value our project can deliver now is worth much more than the same benefits 3 years from now. And because of that, there needs to be a strong bias for action not for analysis or planning. As a technology investor once told me, there should be 10% thinking and 90% doing. The best programs make decisions quickly – one and done the same day, preferably. Again time is money, have a bias for action. Overthinking is the enemy.
#4 MAKE CASH MATTER
I often heard PE colleagues say, make sure the juice is worth the squeeze. It is a reminder that the cost and distraction of your project should provide outsize benefits. The reality is that our project is either creating value or destroying it. Therefore everything can and should be broken down to cash flow impact. In fact, we all start with what PE firms call the J-curve. We have the project cost but no benefits to start with, so we are in the negative, of course. Successful projects have quickly delivered outsize benefits in months and not years. And we need to make sure all long term project deliver short term value too. For example, AI and data science programs can be self-funded by a series of automation projects that generate cash on a quarterly basis, while the program may take years to benefit the business
#5 REWARD TOP PERFORMERS
The biggest lesson from private equity is that management and investors should always be aligned on financial outcomes. Digital transformation will deliver major business value. The executives and project team delivering those results should be rewarded. Consider equity, bonuses for delivering on key initiatives
SO WHAT DOES THIS MEAN FOR YOU AND ME?
I think bringing short term value and bias for action can help more digital projects succeed by delivering benefits early and often; and once we have that digital value creation formula, PE would tell us to rinse and repeat.
We are planning a survey to share best practices among practitioners soon.