People
Catherine Sherwin
Partner & Managing Director, France Country Leader
Paris
What kind of leadership do you need to successfully implement digital transformation?
At what stage of a transformation programme is a company most attractive to investors?
Do transformation programmes even deliver clear value in terms of P&L?
At a recent Private Equity International roundtable I attended, it was clear the answers to these questions aren’t always straightforward. However, a number of factors stood out.
- Having the right digital IQ at the top is essential
The triumvirate of CEO, CFO and CTO are integral to any successful transformation programme. If they don’t all buy into the digital or technological transformation together, it won’t work. Having a CEO who combines tech literacy with sector knowhow is increasingly important, although this is easier in digitally native industries, such as fintech, than in sectors such as manufacturing or pharmaceuticals. Above all, it’s vital that those in charge are willing to ask the right questions and consider new approaches.
The other issue here is the free flow of information within an organisation. As one speaker at the roundtable observed, this flow - for example from an R&D centre through to an executive team - can sometimes become bottlenecked, often through a single individual who doesn’t have a continuous, day-to-day appraisal of what is happening with regards tech transformation.
Other times, the issue is simply a lack of digital IQ at the top table, either because the CEO doesn’t have the right background and knowledge base, or because the CTO isn’t part of the executive team and doesn’t have a clear voice within the boardroom.
- Do your due diligence – and follow through on it
For private equity investors, the issue of tech due diligence is a crucial but complex one.
In order to be satisfied that tech transformation will deliver its expected value, you must have a clear view of the organisation’s technological roadmap from the off, and retain oversight through every iteration of that roadmap.
One speaker at the roundtable gave an example of where investors overpaid for an asset after being won over by the CTO’s demonstration of a product protype. “When we dug deeper, we found this prototype had no legs – it wasn’t scalable at all,” they said.
Sometimes the issue is a lack of appropriate tech due diligence in the first place. Other times the problem is the absence of a clear mechanism for following through on the issues identified through due diligence – for example, situations where no single individual is clearly accountable for implementing necessary measures.
- It’s not always easy to quantify digital ROI
There was a lively debate about how to quantify returns on digital investment. One school of thought had it that if value can’t be quantified in terms of P&L then it doesn’t exist. Another maintained that even if it’s not always easy to quantify returns from digital investment – which is especially tricky with multi-year transformation programmes, where it’s harder to unpick which elements are adding value, and what other contributory factors might be at play – the direction of travel is still important. Investors want to see assets that are on the right path, in terms of becoming more efficient and creating more value in the future through smarter use of technology.
- Weigh up your exit strategy
The direction of travel is important when it comes to weighing up when to invest in an asset, and when to exit. Attendees at the roundtable agreed they would have little appetite to invest in a company that was less than halfway through a major transformation programme. However, an asset that has crested the hill in terms of its programme but still has progress to make - and therefore untapped value still to be realised - could perhaps represent the most attractive option for investors.
Above all, investors want to see a positive trajectory. In other words, a clear roadmap for technological change, and a clear understanding at the top of the organisation about where value can be added and how that value can be realised.