Industry disruption is threatening PE value creation

The PE industry faces an interesting combination of challenges. Interest rates have been kept artificially low for several years, LPs have become more risk-tolerant in search of yields, and PE firms have amassed a lot of dry powder. Increased demand has also resulted in higher asset prices; with credit being so cheap, PE firms face competition not just from one another, but from strategic buyers as well.

Traditional remedies for value creation in portfolio are no longer sufficient. Exponential technologies are disrupting the mature industries that have proven attractive to PE in the past. This is in part because of AI and automation, but also because the structure of these industries is changing. Technologies are enabling capital-efficient business models that decouple assets and people from firms. The nature of firms is changing too; one can now rapidly build global businesses with a handful of people. Instagram was acquired for $1B with just 13 employees.

Startups are exploiting disruption opportunities faster than mature firms, which are hampered by a lack of awareness, cultural impediments and organizational structures focused more on efficiency (e.g. Lean) than innovation and renewal.  PE firms themselves face cultural as well as know-how challenges. PE firms must upgrade their ability to detect and exploit industry disruption, and for this they need outside support.

An agenda for how PE firms can thrive in the post-industrial transition

Partner education: The partners may be insufficiently aware of the disruption challenges faced by current and future portfolio companies. We provide workshops that help managing partners and operating partners better understand the implications of the post-industrial transition. They also learn about new practices, tools, and strategies they can use to secure current and future portfolio value creation.

Portfolio company management education: Our in-depth workshops for portfolio company executives provide a detailed understanding of the risks and opportunities they are facing in the post-industrial transition. They also learn about new management practices, tools, and strategies they can use to adapt to the changes that are taking place.

Assessments: We provide PE firms with an objective evaluation of disruption threats and opportunities in their portfolio companies as well as their portfolio companies’ current innovation capability. The latter is impacted by leadership style, culture, organizational structure, systems, processes and practices. The result of the assessment is a report detailing strengths, weaknesses, risks, and improvement opportunities.

Developing a post-industrial vision: Exponential technologies are reshaping the world and tomorrow will not be slightly modified version of today. This has big implications for the PE industry. A different set of assumptions will underlie success; PE firms will need to function differently and their external environment will change dramatically.  We can support the management team in the development of a post-industrial vision, one which recognizes the need to operate today’s businesses while rapidly building portfolio value for tomorrow.

Portfolio company transformation: The real work is in the implementation. This is where many organizations get bogged down. We provide a framework for attracting innovators, identifying impactful technologies, mapping industry opportunities, and turning portfolio companies into disruptive ventures..

Monitoring: We provide ongoing support to navigate industry disruption threats and opportunities. This can include evaluation of exponential technologies, policy challenges, innovation system performance, and M&A due diligence.

Contact us to learn more

Frode L. Odegard, CEO
Phone: (650) 830-0430 ext. 501