How CIO’s should shape technology strategy to drive transformation in Private Equity portfolio firms
How technology function is enabler function in the deal environment as well as value enabler and synergy driver?
In our experience taking on Interim leadership CIO roles at portfolios and driving value creation for technology functions, the following are the challenges we have seen:
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New Business models adopted by businesses where more than 90% of portfolio firms are using technology for enabling new business models.
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Different levels of technology maturity especially in middle market portfolios in areas of Back-office capabilities, Governance, Data Integration, Interoperability and Cloud Operations, Talent, and Cybersecurity.
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CIOs should develop a strategy to address the challenges as well as build digital foundation to support growth.
The strategy formulation enables unlocking the full potential of the PE-owned portfolio company. While many portfolio companies improve operational technology to certain extent under PE ownership, they need help to make meaningful progress in building the digital transformation capabilities that will mature all the sub-functions of technology. In our experience, technology plays a more prominent role in portfolio company performance and enable the PE sponsor to realize the deal thesis.
Most deal partners and operating partners attest that mid-market portfolio companies don’t invest in technology function before the acquisition by the private equity. Because of that, portfolio companies tend to have operational capabilities fragmented among multiple systems, security postures are weak, lot of manual processes to support business operations, and limited technology talent to improve the postures in various sub-segments of technology (Business Applications, Cloud Infrastructure, Security, Data and Analytics, and Talent).
Most deal partners and operating partners attest that mid-market portfolio companies don’t invest in technology function before the acquisition by the private equity. Because of that, portfolio companies tend to have operational capabilities fragmented among multiple systems, security postures are weak, lot of manual processes to support business operations, and limited technology talent to improve the postures in various sub-segments of technology (Business Applications, Cloud Infrastructure, Security, Data and Analytics, and Talent).
Need for CIO’s – critical for the portfolio.
CIOs should use technology to make their organizations the preferred partner as business ecosystems become more widely adopted.
There are three main factors that bring to the attention of CIOs and will shape the technology strategies that ensure their success.
There are three main factors that bring to the attention of CIOs and will shape the technology strategies that ensure their success.
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Digital Maturity can help businesses achieve their goals faster and identify new opportunities. They can also help integrate different technologies.
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CIOs can use different business models to drive growth and create value in portfolio firms.
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Digital Transformation typically have a multi-partner structure that can quickly drive innovation, value, and growth by combining the strengths of each partner and sharing brand credentials to enhance the final product.
Based on our work with various portfolios, portfolios have helped attain an average Revenue Growth of 2x and other end we have seen 1.8X faster cost take out initiatives through enablement of appropriate technology leader along with Governance Frameworks than not following those.
Ecosystems or Portfolios are not all the same.
A further variable for the CIO is that not all technology ecosystems are alike. Their selection is defined by the:
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Market Competition
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Market Dominance
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Commercial model
Some of the challenges in using technology to build business ecosystems/digital maturity.
Ecosystems require a strong technology governance structure from all participants. As a practical matter, this implies a dedicated functional group to ensure internal systems are fit for purpose to interoperate in a multi-party environment, and that all governance and inter-operations are accounted for and rationalized.
Successful ecosystems benefit from the combined data of their participants. For example, a well-integrated model will create a cohesive experience for the combined customer franchises and include the offerings of each ecosystem member. Common taxonomies, integration standards, visualization, and artificial intelligence (AI) will be required.
Ecosystem participants will each have different systems, devices, applications, and communication networks. Participating CIOs will need to agree on common core standards and then build out the interfaces that enable systems to talk to each other. The key to this dilemma will be a common cloud platform that embraces the platforms of all of the ecosystem’s members. This platform enables the ecosystem orchestrator to integrate data, set level standards for interoperability, and build a shared data fabric. The common platform will also enable a hybrid-cloud structure that meets the highest security standards of its participants. Cloud is an essential platform for the successful ecosystem.
This is an area of zero compromise. Multiple cyber-systems can present weaknesses and vulnerabilities to hackers. Breaches can then enable access to the core systems of the participants. Ecosystem operators should adopt the strongest available zero-trust protection capabilities, not adopt the least common denominator amongst the participants.
In today’s business climate, organizations are struggling to find the tech talent to staff their internal operations. The ecosystem IT team cannot be an orphan group of part-timers or second-best team members. They need to be of a skill level that matches or exceeds the standards of its participants.
How can CIO’s develop strategy to build successful foundational ecosystem for portfolios?
CIOs typically adopt five (5) pillar strategy to build and grow digital maturity in the portfolio.
If ecosystem requirements have not already come your way, accept that they will be coming soon. Understand your portfolio’s ambitions and which ecosystem model they are adopting. Plan your technology accordingly. Also, recognize that if successful, your portfolio may adopt multiple ecosystems.
To propose trade-offs, drive internal change, decide common standards, and maintain strong security policies and procedures, a strong, respected and accepted central function will be required.
When it comes to transactions, organizations will receive acquire them with varying levels of digitization and business systems maturity. In general, it’s not reasonable to ask the strongest to compromise on systems and networks that integrate with their own. Instead, build to the highest common standard. This is especially true in cybersecurity.
Create a unified view of the customer by integrating data from all sources and merging rich data sources to build common analytics. These will be one of the greatest assets for your portfolio.
To make ecosystem partnering rapid and effective, use a platform approach. Integrate easily and leverage the data of all participants. Make your company easy to connect and share data with, and the most capable of managing common technologies issues that may arise.
Making ecosystems a success can be challenging, both technologically and otherwise. However, given the high adoption rate of ecosystems across almost every industry, avoiding these challenges is not an option for CIOs. The larger picture is that ecosystems can create dramatic success for companies in revenue growth, operating efficiencies and managing risk. These rewards can far outweigh the challenges of getting there. Creating excellence in ecosystem technology can be a strategic and operational driver of success in today’s complex and ever-changing business landscape.