In this, the first of a series on digital transformation, James Leighton Davis looks at the drivers and value of digital transformation to private equity firms.

Twenty years ago, or so, digital transformation was the preserve of IT and was almost exclusively focused on operational efficiency.

What investments were made in digital were largely focused on technology firms or pioneering online ventures. Fast forward to the present day, and the value of back office, cost efficiency transformations has paled into insignificance against the business growth potential of digital transformation in what is now a £18bn global consulting industry (and one where the big names aren’t necessarily leading the charge).

Digital is everywhere in the front office – it spans sales, marketing, customer service, product and proposition – and has driven significant change in the expectations customers have of their suppliers, the way companies engage with their customers and how businesses work throughout the supply chain. Digital has also driven pace into the marketplace, and – in almost every case – represents low hanging value creation within the investment horizon of most PE investors.

I have worked on two substantive interim assignments in the recent past where the real, tangible value of the digital transformation initiatives I have led has supported a highly successful exit for the PE firms – one IPO, one private sale.

The value of digital transformation is also not limited to certain sectors. Any business that acquires customers in any way and over any timeline can realise significant growth and improved ROI through digital. This is now widely understood but many seem to have been slow to catch up – strangely, in insurance and some financial services segments, for example. The confusion-causing-inertia is, generally, where to start?

When I’m speaking to PE firms, I generally recommend the following broad approach:

  1. Conduct or commission a thorough audit of the digital capabilities of the portfolio business against a ‘best practice’ benchmark from the relevant sector. What’s the scale of change and the size of the prize? Where is the low hanging fruit? Is the business geared up to start picking, or are they lacking thumbs (the right ‘digits’)?
  2. Develop, invest in and execute a comprehensive digital transformation strategy focusing on (in this order in 99% of cases):
    1. Executing a digital-first go-to-market strategy – either as a gradual shift or a complete business model change. The metrics in digital are almost always better. This starts with the creation of a high performance customer acquisition ‘engine’.
    2. Improving customer engagement and retention.
    3. Leveraging digital opportunities in product and proposition.
    4. Putting in place a people strategy that will result in a more digital-savvy workforce.
    5. Other operations areas where digital can offer efficiencies – for example supplier management, procurement, finance, customer service.

As I alluded to earlier, the cost of digital transformation is always offset – by an order of magnitude – by the speed at which transformation can be achieved and the benefits realised. To illustrate my point, we were able to achieve a 68% growth in (the right kind of) sales prospects combined with a 49% reduction in cost in just 3 months for one PE-backed business recently. The budget saved was diverted into new digital sales enablement initiatives to support vastly improved conversion percentages. The compound value to the business was huge.

For this reason, digital should be one of the first areas focused on post-investment. And if the digital capability doesn’t currently exist within the business, using interim digital leaders and functional teams can help you get started and realise the significant short term benefits while supporting the recruitment and development of the right people to take the business forward, digitally.

James Leighton Davis is a highly experienced Interim CxO and Independent Strategy Consultant specialising in digital. He has successfully led digital transformation initiatives in the portfolio businesses of Advent, Bain and Montagu among others. Working in partnership with EIM, James and his team conduct digital capability audits, develop digital strategies and lead transformation programmes for VC and PE portfolio businesses throughout UK, Europe and Oceania.

For more information or a confidential discussion please contact Kevin Carlton on:
Office: 020 7290 1430
Email: kcarlton@eim.com