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Invest in Your Portfolio Companies’ Digital Transformation Immediately

December 14, 2020
Reading Time:
4 minutes
Leo Saini
Experienced copywriter who spends a lot of money at restaurants and regrets it later.

If you work in a private equity firm, you must have noticed that a lot of underperforming businesses have one thing in common - a lack of digitization.

Firstly, digitization doesn’t mean just creating an e-commerce version of a brick-and-mortar store or integrating chatbots into a website. Although that could be a very small part of it.

Simply put, digital transformation involves leveraging new technologies to modify or completely change a company’s processes, organizational culture, value creation, and market requirements.

According to a survey by PwC, private equity firms are starting to take digital transformation very seriously. PE firms have now realized the benefits that come with digitization and are prioritizing it.

But why now? And what are these benefits?

Let’s find out in this article.

We will discuss how digital transformation can uplift an underperforming portfolio company, and why digitization is absolutely essential for future-proofing a business.

Digitization Helps Cut Operating Expense of Portfolio Companies

Cutting operational expenses is always a priority when private equity firms invest in portfolio companies. As the saying goes - “A penny saved is a penny earned.” Digital transformation can make operations more streamlined and less expensive. For example, if a portfolio company is struggling with inventory management, and they have staff members handling it manually, an inventory management software can be used to take a lot of the burden off their shoulders.

And this is just one example. There are hundreds of different ways in which digitization can help companies reduce costs—sometimes, even by up to 90%. Whether through using technology to cut labor costs, or automating certain operations to redirect manpower towards other tasks, private equity firms can most certainly save a lot of coin by leveraging the power of digitization.

“Profit or perish... There are only two ways to make money: increase sales and decrease costs.” - Fred DeLuca

Businesses Can Still ‘Stay in Business’ Through Digitization

Who would have ever thought that the whole world will get shut down at once? Imagine the plight of the business owners who spent hundreds of thousands of dollars on their brick-and-mortar stores.

However, the companies that embraced digital transformation early on had a cushion to soften the pandemic blow - even the ones that had brick-and-mortar outlets. Digital transformation can help portfolio companies manage unprecedented events with ease.

For example, if a company uses a CRM software to manage customer data, they can keep in touch with their audience at any given time.

So, if selling products or services is not possible for some months due to an unimaginable event, like a lockdown, a company can simply nurture its relationship with its customers through customer relationship management software and stay on their mind. This way, when things get normal again, the company wouldn’t have to start from scratch.

Digitization Can Be Used to Improve Customer Experience and Skyrocket Revenue

Imagine this: There are two e-commerce websites. The first one looks like it's from the early 2000s, and the other one uses state-of-the-art technology. The former has a boring text description, while the latter uploads 4K Ultra-HD video samples of every single product. One has an age-old ‘Contact Us’ form, but the other one has integrated chatbots into its website to answer FAQs 24/7. Which one do you think will offer a better user experience? Undoubtedly, the second one.

And why is customer experience so important? Well, according to a survey by Microsoft, a whopping 50% of customers said that they’ll choose a competitor’s brand if they provide better customer service. That’s right, customers are only loyal to you when you’re loyal to them.

And if you’re really loyal to them, you’ll make sure to use the latest digital innovations to make their experience as pleasant as possible. So, if private equity firms want to take their portfolio companies’ revenue to the stratosphere, digital transformation isn’t just necessary, it’s a must!

Portfolio Companies Cannot Be Future-Proofed Without Digitization

It’s really simple, only the businesses that are future-proof will survive in the future. Back in the day, taxi services used to mint money by transporting passengers. Then, Uber came into the industry and turned the tables upside down.

Why? Because the taxi industry didn’t future-proof their business model early enough using digital transformation. And someday in the future, there might be a new technological innovation that will replace Uber.

Another example of a similar disruption are online consulting platforms. Back in the day, only the big, well-established businesses could hire consultants, and the big consulting firms dominated the consulting industry.

Fast forward to 2020, several freelance consultant platforms have come into the market. Thanks to them, every business can now access expert advice by hiring freelance consultants - instead of going the usual route, that is, approaching big consulting firms, some of which only onboard a limited number of clients. This takes us to the final point in this article...

How Can Private Equity Firms Create and Execute Digital Transformation Strategies?

Navigating through the choppy waters of digital transformation is not easy. But rest assured, help is available. PE firms can hire freelance consultants through online consulting platforms hassle-free. Well, 'freelance consultants' is a broad term, so let’s narrow it down a bit.

Suppose a portfolio company needs help with moving its data to a cloud-based platform, in this case, a ‘cloud services consultant’ can step in and handle the situation from start to finish. And if the company wants to eliminate costs by automating certain processes, a workflow automation consultant can be at their service.

Whatever hurdles a portfolio company has with digital transformation, there’s always a freelance consultant who can help. And the process of finding one is a heck a lot easier these days. Just approach a freelance consultant platform and let them know that you need someone to help you with digital transformation.

Then one of their team members will get in touch with you to discuss your needs in detail. After the meeting, the freelance consultant platform will send you profiles of various freelance consultants. This will allow you to handpick the best ones for your business. Simple, isn’t it?