“Why not make the work easier and more interesting so that people do not have to sweat?

The Toyota style is not to create results by working hard. It is a system that says there is no limit to people’s creativity. People don’t go to Toyota to ‘work’ they go there to ‘think’“

That quotation comes from Taiichi Ohno, the Japanese industrial engineer and businessman considered to be the father of the Toyota Production System, which inspired Lean Manufacturing in the U.S. He made a very interesting and valid point about employee creativity and motivation for work. The sentiments in his statement, which dates back to the 1970s, are never more true than today, not just for manufacturing businesses but for all portfolio companies in need of digital optimisation.

It’s Not Just About the Technology – Take a People First Approach

If you have time to keep abreast of the wall of content produced by strategy and technology consultancies about the operational improvements increasingly available to portfolio investments, you will no doubt be aware that most of us have put out our thoughts and recommendations around the myriad of modern and evolving digital initiatives to improve production processes as part of an evolving Industry 4.0. That technology universe now includes; AI, IoT, Cloud, RPA, CAD, CAM, ACAM, AR, VR, BDA, and a host of other abbreviations and acronyms, as well as Blockchain, digital twins and predictive maintenance promising improvements, both for production and sales processes and sometimes to assist wider business operations.

As a brief reminder, the graphic below illustrates where we’ve come from in terms of the application of technology to advance businesses’ production and operating processes, in what is really a short period of time. We can debate the dates and which technology sits where but hopefully it illustrates where we are today and provides an inkling of how much further production and business processes can yet develop in terms of operational efficiency and sophistication. Today, the growing arsenal of Industry 4.0 technologies is enabling first mover and ambitious companies to benefit from interconnectivity advantages across supply, production and sales chains that were largely unavailable with most Industry 3.0 opportunities. This also brings its own challenges when it comes to keeping operational employees up-to-speed with the new innovations and modern processes that the potential of Industry 4.0 brings with it.

Technologies of the Four Industrial Waves

Not so many consultancies address the impact those technologies might have upon your investments’ human capital. Portfolio companies’ employees are a critical element, but sadly too often neglected, when considering technology-based improvements. The impact upon employees, management and business culture can be significant and catastrophically destructive if not taken into account at the outset and considered throughout any digital implementation that is part of any programme of value creation.
Digital transformation can help free up employees time. By removing repetitive, or increasingly unnecessary tasks, you have the potential to make employees’ day-to-day work more interesting. It also makes for a more compelling argument for them to stay with your portfolio businesses. Another quote hits the nail on the head. Christine Thatcher, VP of Human Resources at TW Metals stated:

“The more we retain our people, the less time we need to commit to recruiting new people.”

That is so true. The ONS reported over 1.1 million UK job vacancies as of February 2023, almost double the historic average of around 684,000. They also reported wage levels reached a historic high in April 2023. It’s increasingly apparent that experienced employees need to be valued and nurtured. It is certainly the case that some new investments require a rationalisation of the workforce, but if there is real opportunity for growth and you require people to help you realise those plans, then informing, training and providing your existing employees is usually a far less costly way of achieving that than hiring anew. Employees that feel excluded from an IT implementation, poorly engaged and frustrated through lack of training, can rapidly be looking towards the exit door. Consequently, a lack of attention as to how digital transformation projects might impact the employees within your portfolio can rapidly turn into an expensive HR disaster zone. It need not be this way. A few simple and straightforward actions can avoid unnecessarily wasted time and expense and present affected employees with more opportunity to do more interesting and value-creating work.

Some of the following may seem obvious but it is remarkable how often IT projects “fail”, to greater or lesser extents, because of the lack of attention paid to those employees either directly involved in implementation, or the ultimate users of the digitally enhanced production processes and business operations. Here is a summary of what you should be considering ahead of, during and subsequent to implementation.

Change Management in Digital Transformation

When it comes to digital transformation for new portfolio investments, change management becomes crucial to navigate the complexities and challenges associated with implementing new technologies and processes. One of the key challenges is inclusiveness. It is important to ensure that all employees, regardless of their background or level of experience, are able to participate in the digital transformation. This means providing training and support to all employees, and creating a culture of openness and collaboration. Do that and it can yield other surprising benefits. Business and project leaders, and their consultancies, also need to inspire and engage employees by outlining the rationale for change, addressing concerns, and demonstrating their commitment to the transformation journey.

There are a number of things that portfolio company managers and PE Operating Partners can do to ensure that inclusiveness is a part of their change management process. For starters, here’s a few of those key elements of effective change management:

01. Communicate effectively:

It is important for your portfolio manager to communicate the benefits of any digital transformation initiative to all employees, and to address any concerns that they may have. They must be transparent about the changes being introduced, why they are necessary and what are the benefits to both the business and to colleagues. Listen to employees’ responses. Take on board their concerns and hopes for the future.

02. Incorporate inclusive decision-making:

Involve employees from various departments and levels in decision-making processes related to digital transformation. Seek their input, ideas, and feedback to ensure that different perspectives are considered, leading to more comprehensive and effective solutions.

03. Collaborate across functional teams:

Encourage a culture of teamwork by forming cross-functional teams to drive digital initiatives. This allows for diverse expertise to be combined, fostering innovation, problem-solving, and knowledge sharing across different areas of your portfolio companies.

04. Create a change forum:

Provide a platform where employees can ask questions and share their ideas. This will help to create a sense of community and to ensure that all employees feel like they are part of the change process.

05. Don’t neglect diversity and inclusion Initiatives:

Embrace your workforce’s diversity in all its forms and promote an inclusive work environment. Add to it, if necessary and foster a culture of respect and appreciation for different backgrounds and perspectives. You can never be sure who is going to realise some insight critical to the success of a project, or eventually uncover a new revenue generating opportunity, through reskilling, or applying valuable past employment experience to your diverse and inclusive investee companies.

06. Provide training and support:

Portco employees need to be trained on new technologies and processes. Training should be ongoing, adaptive, and tailored to individual roles and responsibilities to ensure successful adoption. It needs to be provided in a variety of formats. Some employees may prefer to learn through traditional classroom training, while others may prefer to learn online or through self-paced modules. Don’t forget to make training materials available in multiple languages, if appropriate. Remember, not all employees may have English as a first language.

07. Provide additional Change Support:

Not everyone is so adaptable. Some employees may need to have access to additional change-support. For example, provide opportunities for employees to shadow colleagues who are already using the new technologies. This will give employees a chance to see the new technologies in action and to ask questions.

08. Assess skills and provide development:

Identify employees’ existing skills and capabilities and align them with the digital transformation roadmap. Provide opportunities for upskilling and reskilling to empower employees to take on new roles to fit with your new level of digital excellence.

09. Create a culture of openness and collaboration:

Employees need to feel comfortable expressing their ideas and concerns, and they should be able to work together to solve problems. Encourage feedback and address concerns in a timely manner to creates a culture of open dialogue and trust.

10. Provide recognition and reward:

Recognise and reward employees’ contributions and achievements during the digital transformation journey. This can be done through performance incentives, acknowledgment of innovative ideas, and career advancement opportunities, fostering a sense of value and providing motivation.

Though not a UK deal, the recent announcement by Sweden-headquartered enterprise software solution provider, IFS of its acquisition of Poka is a timely illustration of the value now being placed upon this type of employee engagement. Poka is a Canadian business that offers its clients a connected worker platform that enables workers to learn, share and collaborate from the production floor and across the wider value chain.

‘Right First Time’ Change Management Approach

As a technology consultancy and we have delivered digital transformation projects, big and small, for numerous clients operating in various sectors. We have also been fortunate enough to have worked with some very skilled and operationally-focused private equity investors that have seen opportunity and value to turnaround a number of failing businesses, recognising the value of digital transformation and change management as part of that recovery. We have introduced or improved all the abbreviated technologies listed in our introduction and more besides. But we consider ourselves primarily a change consultancy. We understand the value of our portfolio company clients’ employees but also that there is invariably more value and reward to be realised for both the client and the employee.

The figure below presents the seven core components that underlie our Digital Transformation framework. This is a necessary simplification of what can be a complex realignment for many businesses embarking on overdue technical change.

Cultural change is an essential component to ensuring that technical change is successful and transformational. From the outset, we will emphasise the need for aligned leadership and a commitment to cultural change and will repeatedly stress the importance of this throughout the digital transformation project. Your appointment of an external technology advisor, and in order to navigate your portcos’ digital journey, means that your investment must already have a senior Board member receptive to that all-important digital optimisation. This first digital advocate is crucial to your portfolio company’s growth and future success. Converting more sceptical Board members may be more challenging but is no less critical to the success of any digital programme.

Digital discrimination is a frequently encountered obstacle to companies’ growth and future success. Almost half of our major digital transformation client work has involved rectification of stalled processes or projects that have gone over budget, with little prospect of successful completion without remedial intervention. You can read a bit more about the most frequent reasons for project “failure”, and how to avoid that prospect, in our article, Avoiding IT Project Failure: The Importance of Discovery and Comprehensive Planning for “Getting it right first time”, where we further emphasise the critical aspects of Inclusion, Communication and Culture for the successful completion of any IT project implementation.

All seven components are essential to any successful ‘right first time’ digital transformation and need to be considered holistically. However, the impact on employees, and the accompanying opportunities for them and the business, largely sits within three of those components:

• Component 1

• Align Leadership and Culture for a Digital Future.
  This covers Board commitment, determining and securing the necessary budget and investment, the establishment of a Digital Optimisation Team and the establishing of a “Digital First Culture”.

• Component 4

• Foster Innovation.
  Most portfolio company management will be aware of the digital offerings of their closest competitors. However, many will not have considered the opportunity to stretch their own talent capital. How might the digital experience, gained from employees that have worked at other companies and sectors, be applied to change operating protocols, target different revenue streams or help combat digital competitors? This is a missed opportunity and is something Panamoure advocates exploring, as the promise of a more innovative environment will not only aid the business operating model, but help attract and retain personnel with “digital-first” experience and outlook.

• Component 7

• Reskill your workforce.
  This is where we work portfolio company management to find and build the necessary skills to see through a digital transformation programme. This will involve the upskilling of existing employees, potentially appointing additional employees with the required skills to help deliver that implementation and to contribute ongoing delivery to the business. It is also where we would help in the selection of the most appropriate vendors; those that have a proven track record of efficient implementation and teams with the appropriate skills and motivations.

So, rule number one. Don’t forget your people!

Empower your portfolio’s existing stars. Help your investments to attract, retain, educate and enable their stars of tomorrow. Get that right from the outset or else you risk the prospect of some degree of “project failure”, irrespective of how fantastic and business-enhancing your portco’s management have been promised their newly acquired technology might be. That digital transformation technology can only be as good as its implementation. Your people, implementation team and advisors are critical to that process and the production or business operations that it’s designed to enhance.

Culture and people change isn’t the sole and complete answer to business success but it is a critical part of it. Here’s a simplified illustration of the sort of success that’s possible by keeping those employees informed and engaged and how it fits alongside the technological improvements introduced in parallel.

Creating Competitive Advantage for a Manufacturing Buy-and-Build Strategy

A Private Equity backed acquisition strategy presented us with four technologies and processes used by previously disparate companies coming together under one Group for the first time. The Client was trading in a highly competitive market with a technology-immature starting point. Panamoure was asked to create and implement a data strategy and digital platform that would provide them with a competitive advantage. Failure to achieve this represented significant risk both to the buy-and-build growth strategy and opportunity for organic revenue enhancement.

Over the course of multiple engagements, the integration of 9 add-on acquisitions and 12 brands, Panamoure provided the foundations for sustainable organic growth and a platform for rapid add-on integration. We helped the Client in reducing manual effort to a minimum, improving inventory management, data integrity and enabling real-time insights. Operating expense, as a percentage of revenue, reduced by 6% in the first year. Since Panamoure’s relationship with the company, revenue has increased by almost 70%.

Continuing Challenges and Continuing Opportunity – Get it Right First Time!

The BVCA estimates there are currently over 12,000 UK companies currently within private equity portfolios. According to the ONS, that means there are over 2.7 million companies, with more than ten employees, that have not yet been touched by private equity capital or their programmes of professionalisation. Many of those companies won’t be investible but, whether you are considering an interesting new investment opportunity or seeking to enhance the value of those companies already within your portfolio, digital transformation presents an opportunity to facilitate growth, reduce costs, reduce and mitigate risk and to realise value more rapidly than was previously possible. A digital approach also presents the opportunity for your investments to be more competitive than other businesses operating within the same arena, whether they are also private equity-sponsored, independent or even publicly-listed. The potential is great but, unfortunately, many portfolio companies and independent businesses alike can squander the potential of new technologies by simply neglecting this important aspect of their digital transformation. We have observed many project failures of this kind with prospective portfolio company clients. It really is a shame, and really unnecessary, to let a business enhancing technological change falter or be delayed by neglecting these important elements as the change management components of any such digital exercise are a relatively inexpensive part of even substantial technology investment.

There’s no getting away from the fact that businesses operating in many sectors continue to face many ongoing challenges, as well as the prospect of new and unforeseen examples yet to materialise. As a technology consultancy, Panamoure firmly believes in the power of digital transformation as the most pragmatic route to help your business prepare for those risks and unforeseen challenges. As a change consultancy, we believe even more that your people and your business culture are critical to the successful preparation to meet those risks and challenges. Remember, you don’t need to do that alone. Take the opportunity to leverage the experiences of others, that have already successfully navigated that transformation process, to help you fast track your own digital journey.

Not all private equity sponsored businesses are blessed with the full complement of IT expertise and capacity to carry out any digital transformation programme on their own. If any of your current portfolio are considering such a project, or have an IT stack that is starting to creak, please get in touch for a no commitment discussion, and to allow us to show you how we have successfully delivered such projects for private equity clients and how we always put your portfolio companies’ people first.