New Digital Imperative: Accelerating Value Creation in Private Equity

Triggered by COVID-19, Private Equity (PE) backed companies alongside their non-PE backed peers have gone through 5 years of digital transformation in 5 months.

Not only has Digital become an enhancer to the traditional PE value creation levers, like price optimization, operational improvement, and volume growth — it has now become an imperative. Digital transformation holds the promise of more objective decision-making, a critical advantage when markets are volatile, and acts as an often untapped enabler to additional profit.

6 elements to Accelerate Digital Value Creation

Going forward, unlocking value through digital must be a top priority for Private Equity firms and their portfolio company CEOs alike. Our Salesforce Private Equity Practice has found that companies doing it right are tackling these 6 key elements from the outset of their transformation programs:

1. Strategically center around the customer

Today, every company needs to be a customer company. But, what stands between leaders and customer centricity? Bret Taylor (Salesforce’s Chief Product Officer) states it is conventional attitudes, silos and legacy systems. These have been exacerbated by the Covid-19 crisis. Today’s Digital Imperative is about strategically tackling these conventional attitudes and redesigning your business towards your customers, suppliers and partners.

Every industry is changing. Whether you’re in manufacturing, consumer goods, life sciences or retail – business models are changing. The ‘customer’ is now at the core and the technology gap to accelerate that change needs to be closed at lightning speed.

Explore:

• Explore how Salesforce’s industry teams have built this shift to customer centricity into the design of tailored industry clouds to accelerate time to value.
• Learn how PE-backed companies can generate new revenue streams by building embedded analytics directly into their products to monetize their data and digitally transform their business models, not just their internal operations, around changing customer needs.

2. Use analytics to identify the low-hanging fruit

Data fragmentation is the top challenge faced by nearly 50% of CFOs at portfolio companies backed by PE firms, hindering the generation of quick wins and scalable transformation. Focus and transparency, through actionable data and clear KPIs, are critical to digital value creation success and facilitate quick wins. Powerful data and sophisticated analytics help PE-backed companies articulate the low-hanging fruit around the priority use cases identified with the greatest potential for value creation.

To overcome the obstacles of unconnected data (and ultimately, silos), PE firms are increasingly leveraging data visualization systems. In successful digital value creation initiatives, analytics are utilized throughout the PE investment lifecycle, notably during origination and due diligence, to pulse the digital readiness of the portfolio company, assess digital maturity and quantify estimated growth and productivity gains from planned digital programs.

Explore:

• Learn about how analytics and real-time visualizations enable better decision-making across the organization, powered by Tableau.
• Learn how to use AI to understand your customers and build prescriptive analytics.

3. Create a technology culture: re-skill and up-skill

Transformation doesn’t begin and end with technology. A significant hurdle portfolio companies face is the lack of a technology culture across their organizations and amongst their executives. By taking an open approach to architecture, process and culture via cultivating information transparency and shifting to unified customer-centric engagement philosophies across departments, companies will be able to transform the way the entire organization operates. In contrast to silo principles, an open approach means planning for mobility, connection, and continuity in your technology strategy – read more about the 7 Principles of Flow required for successful business transformation by Vala Afshar (Salesforce Chief Digital Evangelist).

COVID-19 has accelerated the need for online collaboration, employee reskilling, and e-learning tools to enable the cultural shift required for successful digital value creation. As highlighted in a London Business School study by Florin Vasvari, Private Equity firms have a unique opportunity to support their portfolio companies in making that cultural shift by committing to the information management, advanced analytics skills and technology investments that come with a successful digital transformation.

Explore:

• Learn how to ramp up new employees faster, supercharge productivity and cultivate company culture with myTrailhead hub, to support digital transformation and quickly help your portfolio companies’ workforce tackle new digital challenges.

4. De-risk the buy-and-build strategy with seamless integration capabilities

Buy-and-build strategies and mergers and acquisitions (M&A) can provide both the means and the opportunity to jump-start a digital transformation. But it is impossible to find two companies using identical systems and applications across the full tech stack.

Common M&A challenges faced are:

• Insufficient IT integration
• Siloed and incongruent data
• Lack of visibility on business-critical key performance indicators
• Regulatory compliance issues and more

In contrast, the ability to quickly integrate systems, applications and databases gets business processes up and running in synchronization and avoids risking the delivery of the deal objectives which is crucial for add-ons and their distributed structures.

Explore:

• Learn about how MuleSoft helps connect and transform businesses after mergers and acquisitions, and ultimately de-risk the buy-and-build strategy in terms of integration results.
• Learn about Employee Experience features to make collaboration effortless even with teams working far apart, a common scenario in M&A.

5. Build-in agility and scale by design

From the digital health assessment at due diligence to the full transformation plan following investment, PE-backed companies who succeed in accelerating digital value creation build in agility and scale into their tech stacks by design. The scalability of a portfolio company’s Customer 360 platform underpins the strategic objectives of the PE investment, e.g. internationalization, channel expansion and e-commerce growth.

A multi-tenant cloud system, like that of Salesforce, allows for integration with services provided by the external community and ecosystem. With single-tenant cloud systems, heavy resources would be spent on maintaining operations and functionality. In contrast, multi-tenant cloud systems focus on shared resources and strategic objectives: growth via finding new pockets of revenue and boosting productivity.

Explore:

• Read Salesforce CEO Marc Benioff’s Dreamforce Keynote Speech.
• Learn about the AppExchange ecosystem of apps to help extend the capabilities of your business.
• Grow faster by bringing data and processes together, delivering IT integration 3x faster.

6. Take an active role in Digital Transformation

A successful PE-backed digital transformation is where we see both the Private Equity firm and portfolio company management taking an active role in assessing and executing the digital agenda. Going forward, being technology-led will become an expected standard among GPs and LPs, not a differentiator or a source of competitive advantage. By following the 7 Principles of Flow and taking an open approach to architecture, process and culture, PE portfolio companies can capitalize on technology to digitally transform how their organizations operate; and do so around the customer.

Want to learn more about digitally accelerating time-to-value in Private Equity backed companies?

For tailored digital value creation guidance and information about a strategic PE partnership with Salesforce, reach out to our Private Equity Practice at privateequity@salesforce.com.