Digitalisation - the new measure of corporate value

The world of investment is one that continues to change, and the digital era has accelerated the pace of change. Growth is essential when weighing up the value of a company and digitalising essential business processes facilitates this. 

Not only does digitalisation allow for quicker adoption, streamlined change and effectiveness in general, but it also provides insights and more thorough analysis to help determine ROI for set areas within a business, giving companies the ability to react and reinvest accordingly.

Why investment firms need transformational digital leaders 

Investment firms need leaders who add value by assessing the degree of digitalisation of a company and those who fully understand and embrace this are in a position to make better assessments. 

Digital enables rapid change for greater gains and full development across multiple business areas. There is also more transparency and competition – which can be perceived both positively or negatively. 

In private equity, this is a different way of working in comparison to previous models and strategies in optimising portfolios. Leaders need to fully embrace this in order to make better assessments.

How has digitalisation forged a new line of questioning? 

Previously, private equity companies would typically acquire a business with the intent of growing it before going on to acquire another, to eventually merge the two and add incremental value to both. 

For this strategy to be successful, efficiency becomes a focus to facilitate better operating practices. Today, working digitally is very much at the heart of such efficiency. Among other efficiencies, it helps companies to identify gains and losses and to collaborate more effectively internally and externally. It is scalable, fast and works across the whole business: operations, supply chain, sales marketing and more.

Working digitally helps companies to identify gains and losses and to collaborate more effectively internally and externally.

When assessing a company, it is now important to ask questions such as: 

• How has digital impacted the industry? 
• What value does digital bring? 
• What functions have been digitalised to date? 
• Does the company have a digital vision and organisation, including a chief digital officer or equivalent? 

The need for a cool head in a fast-moving world 

From the Michael Page Retail Study, it is clear that the consumer market has experienced a rise in companies implementing an omnichannel approach to their business. Increasingly, retailers link traditional modes of retailing such as a physical store to a 24/7 global online presence, via digital channels, chatbots and social media.

Increasingly, retailers link traditional modes of retailing such as a physical store to a 24/7 global online presence, via digital channels, chat bots and social media.

Such strategies, with their direct impact on supply chain and logistics, marketing, HR and sales, require a clear vision from a leader with a digital mindset. 

If we look at Amazon’s latest cashier-less grocery store in Seattle, where purchases are automatically billed to customers’ accounts, we can see that there is no slowing down. Instead, innovative concepts and models will continue to spearhead business change. 

It is therefore important that private equity managers understand such innovation and that companies identify the potential for innovation through digitalisation within their existing portfolio and planned acquisitions. Companies must have the right skills and experience behind the decision-making process, to effect intelligent strategic change. 

Miguel Portillo Executive Director at Page Executive, comments, “Companies have the power to change key roles in the businesses they control. Indeed, it is essential they implement such change to stay ahead of the curve.”

The importance of leaders embracing a digital strategy 

A vision and a strategy are essential to pinpoint the key areas within the business where digital can be best embraced and to outline how this will impact the business in the future. 

If there are digital roles within a department, it may make sense to employ a head of digital. It will depend on the objectives and, ultimately, what the specific hire is expected to achieve in the way of business growth. 

Max Eweg, Associate Director at Page Executive and responsible for CFO practice and Financial Services, observes, “Sometimes we find that there is a matrix situation where the decision maker is unclear. The CFO reports into the CEO and then there is the investor, who is also a key stakeholder, next to the CEO. But are all these leaders fully aware of what digital transformation can bring in terms of investment and do they have a shared cross-functional digital vision?”

Are leaders fully aware of what digital transformation can bring in terms of investment and do they have a shared cross-functional digital vision? 

Max Eweg, Associate Director, Page Executive

Private equity companies need digital strategists with the ability to understand, conceptualise and direct tactical implementation of an overall strategy. 

The global picture 

Looking around the world, it is clear to see regional differences. Wenda Keijzer, Senior Associate at Page Executive Netherlands and responsible for the Consumer practice and aspects of Digital, explains, “The Chinese are far ahead on digitalisation, even in traditional markets such as insurance. They think of digital in terms of opportunities and partnerships. They are fast decision makers and able to innovate at speed. Their market is also very different compared to Europe with a mind-blowing mobile-only population and the use of WeChat as not just a messaging app but as a portal and platform.” 

Regarding digitalisation as an opportunity is inherent within Chinese business culture. This model and mindset are very different from European attitudes and practices. 

In conclusion 

The nature of profitability and what constitutes success in the 21st century is changing. Understanding the relevancy, level of innovation and core behaviours in addition to skill set and core competencies is essential. Aligned with best practice, this will help to drive a more profitable business in a digital age.

In assessing the health of a new or existing business, corporate value is no longer based solely on traditional measures such as bricks and mortar assets, plant, inventory and deals in the pipeline. ‘Due diligence’ is now also needed on how far the business has advanced on its digital journey and its future potential for digitalisation.

KEY TAKEAWAYS 

• Companies need to recruit leaders with deep digital know-how in order to maximise the value of their portfolio 
• In hiring leaders, firms should look beyond private equity experience to candidates’ ability to drive a cross-functional digital vision 
• Private equity managers need the skills to find value in untapped areas