Seven Insights Into Digitising Your Portfolio

​La Fosse Associates held a panel discussion, for both investment professionals and leaders of their portfolio businesses, to explore best practice techniques for digital transformation.

The discussion was facilitated by Jonathan McKay, Chairman of La Fosse Associates, Forward Partners, JustGiving & CBNL. The panel included the following high-profile business leaders:

Susanne Given – Chairman of Made.com, NED of Eurostar, previously COO of Superdry
Sean Cornwell– CEO of Direct Ferries, previously CDO of Travelex. Shutl, E-Harmony & Google
Trevor Didcock – NED of Futurice and Affinity Water, previously CIO of EasyJet, Homeserve, AA, & RAC
Simon Francis – CEO of Flock, previously CEO of Saatchi & Saatchi/Dentsu Aegis
Amanda St Levens Jobbins – CMO, Oracle EMEA & JAPAC, previously CMO of EMC, Sage & Cisco

Is there, to quote McKinsey, a more anxiety-inducing term in today’s corporate lexicon than ‘digital transformation’?* Probably not, given the high stakes involved. New technologies and business models are upending entire sectors, threatening incumbents with an unprecedented wave of disruptive forces.

Our recent wide-ranging discussion, through a private equity lens, suggested that senior executives in portfolio businesses must take digitisation seriously. The rapid rate of change presents a huge challenge to all modern organisations. However, this challenge also presents a significant opportunity. Investment professionals should note that their portfolio businesses must be prepared to take radical shifts in leadership, innovation, measurement and governance. Here, we present seven key take-aways from the event for investment professionals and leaders of their portfolio businesses.

* http://www.mckinsey.com/business-functions/organization/our-insights/nine-questions-to-help-you-get-your-digital-transformation-right

1. Make sure the board is digital-ready

Investment professionals must recognise that digital-ready boards have people on the c-suite team that understand opportunities. Culture is key. Boards should help the rest of the business to embrace risk and to develop products carefully over time, rather than being fixated on timelines and exits. However, too many boards are still risk averse. The rate of change, while already hard for some organisations to follow now, will only quicken.

CEOs in your portfolio businesses must lead from the top – they should encourage their boards to embrace digital and to recognise how innovation leads to transformation. Boards should also be willing to bring in external advice from non-executive and independent experts. ‘That sort of education can help the penny drop,’ said Cornwell, referring to the importance of digital transformation.

Interestingly, panellists believed attitudes are changing – boards in more traditional sectors are reaching out and drawing expertise from faster-moving businesses and sectors. The message for investment professionals is that their portfolio businesses should not be scared to replace board members if the executive team lacks digital knowledge. The same is also true for the funds run by investment professionals. Digital-savvy talent will be crucial to understanding and managing the risks associated to new investments.

​

2. Educate the rest of the business about the importance of transformation

​Evidence suggests the biggest companies dedicate significant funds to R&D.* Booz & Company’s annual study of the world’s biggest R&D spenders reveals some blue-chips, particularly in the pharmaceutical and technology sectors, dedicate more than 15 per cent of revenue to innovation. Investment professionals must be watchful of their portfolio business that are spending less on innovation. Executives at these firms must think about how they will allow the organisation to play and test.

One barrier is that the timelines on digital projects are often unclear and getting the board to invest in something intangible can be tough. Once again, culture is key. Smart businesses continually analyse and measure performance, particularly when it comes to customers. Simplicity is crucial. ‘Don’t create digital activity for the sake of it – hone in on what matters most to customers,’ said Given. Those measures might include sentiment and advocacy, rather than traditional metrics, such as sales figures.

In a B2B context, that metric will focus on the point in the value chain that is most significant to the business. Jobbins, for example, said her organisation runs a digital index and its sales team are measured on their performance regarding digital.

* https://www.strategyand.pwc.com/media/file/sb61_preprint_Global-Innov1000-10408.pdf

3. Understand that high-quality customer experiences are crucial to success

‘By the end of 2023, 50% of the global consumer base is anticipated to be millennials or younger’ said Given. These are digital natives whose expectations of customer experience are of paramount importance. Data might be key to understanding market trends but, in an era where great customer experience is key, people matter more than ever before.

Investment professionals should note that teams in their portfolio businesses must be structured to support the central role of customer relationships, perhaps through the appointment of a chief customer officer. ‘Be agile about your board members,’ said Given, who encouraged attendees to find people who are comfortable with business change. Ask yourself, said Cornwell, whether your board has the capability to cope and adapt. Firms have often met this challenge through the appointment of a Chief Digital Officer. Yet panellists warned the appointment of a CDO is often a cry of frustration. CDO roles have had a role to play in demonstrating the importance of transformation but now all board members need to step up and take responsibility for digital, said Didcock.

There needs to be change in private equity to support this wider transformation, too. New, agile competitors do not necessarily rely on P&L statements to highlight where the business is doing well. Investment can be a long-term exercise where the returns accrue over years not just months. You must ensure your portfolio businesses have the right resources to assess the value of innovation and its potential return on investment. As Francis suggested, be prepared to take a blue-sky approach – your investments might need to be supported for three years, or even more, before you see positive returns.

​

4. Make the most of an existing brand

Having a well-known brand, said Francis, is an amazing asset. However, there was concern shown that investment professionals often underestimate the value of brand. In many cases, the benefit of an established brand is held by legacy businesses, but there are lessons for all organisations looking to use digitisation to make the most of their existing assets. If a firm that you’re investing in can replicate the digital, app-based experience across its existing brand and customer base, and scale that digitisation, then it will win. ‘Combining agility with scale creates a winner,’ agreed Jobbins.

Didcock, meanwhile, said there is nothing wrong with being a fast follower. He referred to his time at EasyJet, where the firm caught up with digital pioneers and then developed an award-winning app for its existing customer base. Culture, once again, will be key. Digitisation is easier in nascent firms but legacy businesses can transform successfully, if people within the organisation are willing to adopt a flexible attitude and to embrace digital-led change.

5. Use customer data without putting the business and its customers at risk

Big brand executives are profoundly concerned about the risk of making mistakes, said Francis. However, investment professionals will be concerned that few organisations think about liability and employ best practice techniques, such as fire drills and audits, something you would expect to be standard in the organisations you support. Francis has strong advice for executives who are not already employing best practice techniques: ‘Prepare as if you know something will go wrong eventually.’

Investment professionals should be aware that new regulations continue to come online and executives leading firms in their business portfolios must be ready. Panellists recognised both the importance of the forthcoming General Data Protection Regulation and challenges associated to Brexit. If a business is collecting customer data, it needs to feel as if the organisation is providing a service. ‘There needs to be a reason for holding data and executives need to prove it to their customers,’ said Didcock.

6. Bring in expertise at the right level and at the right time

​Digital capability will be key to business success going forwards, so investment professionals should watch to ensure companies in their portfolio do not source anything strategic to an external partner, said Cornwell. Businesses in your portfolio must not outsource digital to a third party, but executives in these companies can still use external expertise to jump start transformation. Executives should use outside expertise to build the groundworks for a digital initiative as early as possible.

An ecosystem of partners can help an organisation and its employees to think in a different way. Here, investment professionals can add significant value. You can draw on your network and cross-industry contacts to help and advise portfolio companies, adding value that would otherwise be unavailable to individual companies.

7. Learn from your successes – and your failures

Cornwell said the executive team at Travelex managed to drive top-down change during his time as CDO. Francis also said he was also part of a team at McDonald’s that created holistic digital change. However, wide-scale transformation will not be right for every organisation and it is important investment professionals and their portfolio business are not overly ambitious. ‘Don’t do trophy digital – always look at what changes your customers really want,’ said Francis. Didcock said individuals looking to create digital transformation should think carefully about the current product mix and how innovation might create improvements for customers.

Rather than overly ambitious targets, panellists encouraged investment professionals and leaders of their portfolio businesses to think of digital transformation as a series of phases. ‘Hit a first milestone,’ said Jobbins, suggesting that early wins will give everyone the confidence to see that digital transformation can lead to positive results. Also, be prepared for failure; not every milestone will be reached successfully. Use these failures to improve your knowledge. ‘There are lots of failures and that’s right – your business needs to learn,’ said Given.