The private equity sector is a finely-tuned game of inches, predicated on timing and high quality (and often asymmetric) data. Being able to access or generate actionable, decisionable data before your competition has the same information is almost invariably the dividing line between success and failure. But how do you actually accomplish this?
In addition to the traditional means of good old-fashioned networking and connections, PE firms are increasingly turning to enterprise digitization as a means to gain competitive advantages in this sector. The ability to integrate new technologies and data streams into your operations have become absolutely critical, and the foundational component of this capability is the digitization of your operations, both in your internal model and processes and in your investment targets. With enterprise digitization, you can build the groundwork to capture raw data in the form of trends, market factors and positions, target capabilities and gaps, and much more. Quality digitization allows a PE firm to build a robust digitalization strategy by which targets can be quickly identified, methodically assessed, and investment decisions made, in a highly automated environment.
The PE industry has achieved exponential growth in the past 20 years. In Europe, the market reached a total of €260 billion in 2019. Meanwhile, American venture capital companies invested more than $70 billion in over 8,000 high-growth startup firms in 2018. With these positive trends, it makes sense to introduce enterprise digitization in your operation to bolster your competitiveness.
What is Enterprise Digitization?
Enterprise digitization is the process of transforming your operations, business models, and processes into digital formats through the adoption of disruptive technologies like big data, artificial intelligence (AI), blockchain, and data analytics. In short, it’s the migration from analog to digital format. Through enterprise digitization technologies and methodologies, you can convert your physical documents, microfilms, photos, and other business records and data into digital formats that can be shared, stored, transferred, secured, and most importantly, USED to create functional information for decision-making leaders.
In digitization, you can also use sophisticated data and analytics (D&A) technology to improve your deal-making strategy. You can also use this technology to conduct growth analyses on financials and analyze the market and social media trends to identify potential investment opportunities. A digitized operation also enables you to automate your mid- and back-office manual processes, like customer relationship management (CRM), fund accounting, and trade and settlement activities.
What are the Disruptive Technologies in Enterprise Digitization?
Digitization offers immense possibilities for improving the way you do business. You can leverage new technologies according to your goals. Here are some of the innovative tools you may consider to bolster your operation:
- Big data are expansive sets of structured and unstructured information businesses analyze to determine the trends, patterns, and performance of their operations, in particular, and their markets, in general. By using data analytics, you can improve your business planning and decision making.
- Blockchain is a decentralized and distributed ledger technology used to record and settle digital transactions in a secure and unalterable manner. You can leverage this technology to transact your business.
- Robo-advisors are a type of financial advisers that can offer financial and investment advice online with limited human assistance. By using these algorithms, you can conduct direct-to-customer (D2C) transactions.
- Machine learning and artificial intelligence (AI) are technologies allowing systems to learn and improve from experience just like humans do. You can use these innovations to create accurate pricing/valuation models, identify market gaps and trends, and analyze your competition.
- Application programming interfaces (API) allow the interactions among multiple software systems to achieve a specific purpose. With APIs, you can generate new business opportunities through cloud computing and mobile apps.
- Robotic process automation (RPA) enables you to automate your labor-intensive business processes. Also called software robotics, RPA benefits include reduced costs, higher efficiency, and human error elimination.
- Social media include applications and websites, allowing users to share content quickly and in real-time. Through social media, you can boost social networking, increase brand awareness, and expand your customer reach.
Benefits of Enterprise Digitization
According to Deloitte Tax LLP official Paul Salomi, the enterprise’s digitization of the enterprise is creating new markets and ecosystems across multiple sectors. Among the industries which are benefiting from digitization is PE. Here are some of the benefits of enterprise digitization in the PE sector:
- Facilitates the search, evaluation, and pricing of a target asset or company. Ultimately, decisions are still based on factors like historical performance, industry trends, capital expenditures, cash flows, and market position, but quality data and information derived from digitization efforts and digitalization strategy can speed and bolster the decision process.
- Ability to upgrade the capabilities of an acquired company to improve its productivity and efficiency. By developing your acquisition, it will reach its fullest potential and generate more profits. Market value will also be enhanced at the time of sale, if that becomes an entity strategy.
- Provides the capability to link the systems, data, and processes of your portfolio companies into your proprietary system. It will allow you to monitor their activities and performance in real-time.
- Expedites the onboarding process for new portfolio companies, saving both time and money.
- Streamlines your compliance and regulatory reporting procedures, even in several jurisdictions. With digital capability, you can collect data from multiple internal departments and portfolio companies quickly and use these data to complete and file your required forms.
- Bolsters the efficiency of your business communication with different stakeholders. With excellent communication, you are establishing stronger relationships with your business partners.
- Improves stakeholder confidence through the faster distribution of required documents like K-1 forms and other communications to investors, limited partners, etc.
How to Implement Enterprise Digitization in Your Business?
Access to digital information is essential if you want to compete in the PE market. By digitally transforming your operation, you can gain data you need to remain competitive. Here are some steps you can take in adopting digital technologies:
- Evaluate your capabilities and create an enterprise digitization plan – To assess your operation and develop a digitization roadmap, you may establish a technology committee or hire a CIO if one isn’t already in place. Your team/CIO will build a digital transformation strategy and technology roadmap, from which decisions to purchase the tools and systems needed in your digital transformation or hiring a company with digital capabilities can be made. You should take into account your goal to achieve a seamless operation when making your decision. Seamless means the integration of your front, middle, and back offices and portfolio companies into one system. TechFides excels in the assessment of IT capabilities, strengths, weaknesses, and opportunities, and has deep experience in developing digital transformation strategies.
- Integrate the appropriate digital technologies into your core functions – With digitized core functions, you can enhance the efficiency of your internal processes and procedures, also known as digitalization. Among the myriad of potential process and system improvements and enhancements are onboarding, investor communications, regulatory compliance, and tax reporting.
- Incorporate digital capabilities in your acquisition process – Using digitized/digitalized D&A technologies in your system will allow you to identify potential acquisitions faster. You can also evaluate their value and performance in their industries to make educated bids and offers, and do so faster than your competition.
- Use digital technologies to manage your acquired companies – Through the use of digital technologies in your portfolio management, you will be able to integrate acquisition systems, platforms, and data into your organization, and monitor your portfolio companies in real-time.
- Upskill or reskill your team – Make sure your employees have digital and analytical competencies. You can either train your existing staff or hire new talents. You may also employ the services of a company with digital capabilities.
The continuous proliferation of disruptive technologies often makes traditional business models slow and clunky, if not downright obsolete and ineffective. PE companies that rode on the enterprise digitization bandwagon early are already reaping the benefits of their decisions. Contact a TechFides principal for a free consultation on how your technology business can be enhanced and optimized.