What Private Equity Firms Want from Digital Transformation

Written By: Eric Kimberling
Date: October 19, 2018

Over the years, we have worked with quite a few clients backed by private equity companies. These big private equity firms want unique things from their digital transformation. Even for those of us outside that industry could learn quite a bit from their endeavors.

As a broad generalization, private equity firms are hyper-focused on creating short- and long-term value for their investments. They invest in companies with the intent of scaling them to exponential growth. They don’t have much patience of things that undermine that laser-focused goal.

This is a refreshing contrast to many other companies, who tend to let their bloated and inefficient ways creep into the ways that they manage their ERP and digital transformation projects. Perhaps this is why so many of them fail. If more of us managed digital transformation like private equity investors, we might make better decisions and oversee more successful ERP implementations.

Here are few things that private equity firms tend to focus on during digital transformations that we help them with.

Private equity firms want to build a scalable infrastructure

When investing in their portfolio of businesses, private equity firms tend to focus on creating scalability. After all, they are typically planning to maximize value and cash out in a few years. With these types of clients, we spend even more time on reengineering business processes and efficiently managing the overall implementation.

Private equity firms value speed and agility

On one hand, these companies want scalability. But, on the other, they want to maximize flexibility and speed. They want to build organizations that can effectively respond to market demands and grow quickly. This can create competing priorities, but good independent ERP consultants are able to help choose and implement software that accomplishes both objectives.

Private equity firms want simplicity

Private equity backed organizations don’t typically respond well to complexity or inertia. They don’t want complex business processes, complicated software evaluation processes, or big Tier 1 ERP systems. They don’t necessarily want the best ERP system – they want things to be simple.

Private equity firms I’ve worked with tend to cut to the chase pretty quickly. If something doesn’t add value, then they don’t want to waste time or money on it. If they are just going to sell the company in 3-5 years, they don’t want to spend an inordinate amount of time and money on an ERP implementation.

Private equity firms look for value

Our private equity backed clients are hyper-focused on demanding value from their investments. When it comes to their digital transformation projects, they are quick to pull the trigger and cut a workstream if they don’t see value. This can be a good thing, but it can also lead to some difficulties in the longer-term.

Private equity companies sometimes cut too many corners

In their quest for flexibility, simplicity, and value, private equity firms at times tend to cut corners or focus too much on short-term objectives. This may help streamline things in the short term, but it can increase costs and optimize business benefits in the longer-term. For example, organizational change management is one of the workstreams that we often see private equity owners resist.

What we can learn from private equity firms about digital transformation

Despite the occasional downsides, private equity firms have a way of aggressively pursuing transformation initiatives. With so much money at stake, it is understandable why they would follow the things that they think will maximize value and ROI. In short, they do a lot of things that help avoid ERP failure.

What are some of the values they share that you might be able to bring to your digital transformation?

Author:
Eric Kimberling
Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.
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