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In recent years many PE operating groups noticed that acquired companies already had better processes and leaner operations than a decade earlier, especially in larger enterprises. While sourcing programs and improved sales effectiveness still provide benefits, many targets already have good procurement disciplines and most run a form of CRM or various e-commerce tools. More importantly it was getting harder to get step-change improvements with gains beyond 10-20% in most operational areas.

It became clear that the next frontier of operational value creation lied in digital, but consultants and technology vendors rarely addressed the rigorous value creation needs of PE firms. The order of magnitude improvements in effectiveness and efficiency were often anecdotal and some bordered on hyperbole. Yet the results for many are real and bankable with short term dramatic increase in EV.

So where to look for the biggest opportunities for short term, mature, digital value creation technologies?

Efficiency Based Digital Value Creation:

  • Robotic Process Automation  – HIGH value, LOW disruption, 3-9 months
    • I believe robotic process automation and related cognitive AI may become the biggest value creator for PE firms in the next 10 years until labor efficiency gains taper off. The technology can be easily aligned with the investment thesis to focus on one part of the operation or scale across the business. While the focus is on labor efficiencies, RPA reduces errors and compliance risk and can increase customer service. The biggest challenge is the plethora of vendors and as a result some technologies becoming obsolete
  • Predictive Analytics for Operations, Predictive Maintenance  – MODERATE value, LOW disruption, 6-9 months
    • Anyone with manufacturing and complex supply chain will get a boost from such tools. Many operational decisions like monitoring and anomaly detection, root cause analysis can be automated to prevent stoppage and waste.  Predictive customer analytics especially consumer focused businesses provide better management of churn, attrition, analysis of customer choices but also related credit risk or anticipated reverse logistics costs.  In all these areas value creation is easy to measure and with many vendors can be built in the tools themselves.
  • Cloud migration   – MODERATE value, HIGH disruption, 12-18 months
    • Just get it over with it if you can do it early in the holding period. Cloud technologies are over a decade old, well established and mature. There is absolutely no reason for anyone to hug their own servers. If cloud vendors are secure enough for governments they should work for portfolio companies. There are endless migration and integration tools and providers. Of all digital transformations, this is the most painful to complete and therefore most companies will procrastinate.

Growth and Risk Avoidance Based Digital Value Creation:

  • Digital Commerce – MODERATE growth value but sales/marketing is plagued with growth attribution problem
    • Growth is clearly a major driver in investment theses and commerce tools absolutely have tangible benefits. They SHOULD be considered for any value creation plan. Many times however they end up falling short due to the business model change required to maximize the value ranging from customer segmentation, through channel conflicts to new compensation plans. Many projects end up with a commerce channel to existing sales and marketing functions and rarely create the multichannel digital interaction this innovation inspires to be and the related value it could create.
  • IoT – MODERATE Efficiency value, Risk Avoidance value HIGH at full manufacturing capacity
    • While the eventual value of IoT may match the hype, the complexity of broad IoT initiatives are hampered with system interoperability issues and complex projects. There are great use cases in manufacturing in environments running at full capacity like semiconductors or other flow manufacturing. Some portfolio companies also get quick IoT wins in predictive maintenance described above but broader supply chain to manufacturing transformation typically point outside the investment horizon or risk tolerance of PE boards
  • Blockchain  – Risk Avoidance and Efficiency Results Hard to Measure
    • Most firms struggle with enterprise blockchains due to the nature of having to form or join consortia to maximize value. I see few blockchain projects initiated in PE portfolios. I explore blockchain value strategies in my other blog, Blockchain Farm.


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