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The private equity guide to digital transformation

  • 28 October 2020
  • Digital Transformation Private Equity Advise

Digital transformation could be one of the greatest untapped sources of additional profit for PE-backed companies. It is more relevant now than ever before due to COVID-19 accelerating digital disruption.

To enable successful digital transformation, companies must have the appropriate balance of digital capabilities and culture. In the rush to digitally transform portfolio companies, private equity funds often overlook the importance of culture which is the foundation to any successful digital transformation and frequently the hardest part. In this blog, we explore the characteristics of a digital culture and what you can do to encourage it in your portfolio or company.

If it isn’t all about technology, what is it?

The top enablers for creating a successful digital culture are summarised in five elements:

The private equity guide to digital transformation
Customer centric is at the middle as the other capabilities are employed in service of providing customer value often through new business models.

Nimble and fast

Why? Being nimble and fast is the ability to act and react quickly to new changes. The rapid pace of change caused by digital disruption in today's markets requires companies to rethink direction and pivot projects regularly.

What you can do? Create a nimble and fast environment through structures, processes, and systems:

  • Structure: Move away from hierarchical structures and focus on creating fluid squads that are loosely connected based on customer needs and project requirements.
  • Processes: Replace detailed project plans with sprints so that teams can quickly act, get feedback, and adjust.
  • Systems: Push decision-making to the lowest possible level to enable rapid action within the organisation.

    For example, the CEO at games development company Supercell is proudly the least powerful CEO in the world. Many big company decisions (e.g. which games to launch) are made by the developers. The role of leadership at Supercell is to put together the best teams.

 

Voracious learning

Why? Voracious learning drives new knowledge and gets people asking new questions by thinking in new ways. Curiosity, experimentation, and exploration is paramount for digital transformation, so it is important for companies to ensure their teams have ability, opportunity, and motivation to learn.

What you can do? Develop the process of creating, retaining, and transferring knowledge within your company. Aside from allocating a training budget you can encourage experimentation, make it the norm to have after event reviews, and encourage effective ways of learning such as partnering people to learn something new.  

For example, at Kin + Carta we encourage learning firstly by allocating 30mins each week for ‘lunch and learns’ so that anyone can share new learnings and ideas. Secondly, we have after event reviews to collaboratively discuss learnings by reviewing what we should start, stop, and continue doing - Fun Retro is a great tool for this. Lastly, we have an allocated budget for learning and development which we often do as a group or in pairs to encourage more effective learning.

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Appetite for risk

Why? Being failure-tolerant is important for digital transformation as risk averse cultures are an obstacle to innovation and failure is a prerequisite to innovation. Companies with a growth mindset have a high tolerance for bold initiatives whereas companies with a fixed mindset are often risk averse.

What you can do? Remove the fear of failure for teams by celebrating and learning from it, reinforcing psychological safety and providing safe opportunities to fail. In some cases, create a reward system that motivates teams to take risks and try bold initiatives.

For example, at Google’s ‘moonshot factory’ the team is encouraged to collaborate on audacious ideas. When a team kills their own project because they find a fatal flaw, they often get a small bonus. The outcome is that the team is encouraged to try bold projects, fail fast and to pursue projects with the greatest potential.

Unbound collaboration

Why? Unbound collaboration is when people work together to create or achieve the same thing. For digital transformation, an external orientation can provide more perspectives and speed development of new ideas.

What you can do? When bringing together individuals with diverse technical disciplines it is important to acknowledge the different perspectives and frames of reference. 

To reduce the ‘us versus them’ dynamic firstly establish a shared identity and common goal for the team. Secondly acknowledge but downplay differences. Thirdly, align incentives as evenly as possible and avoid any power imbalance.

For example, at Kin + Carta we have over 1,600 digital specialists, technologists, and business consultants. To deliver successful digital transformation projects, we purposely pull together teams with diverse skill sets that are most relevant to the customers’ needs. Before starting projects we have clearly defined goals.

What can you do next?

As investors and business leaders you can’t delegate digital transformation, you have to own it and embrace it. As a first step you can use tools like the Kin + Carta Digital Pulse Survey to assess the maturity of digital capabilities and culture at your portfolio or company and identify any gaps.

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