In the modern era of digital engagement, technical efficiency is key to staying competitive and resilient. The strategy that drives organizations using technologies can make all the difference.
Many executives are finding that, especially in these uncertain economic environments, organizations that operate more like Private Equity (PE) firms and embrace the managed services model can unlock new levels of efficiency and capability within their organizations.
While unconventional, this approach can prove to be highly effective in times of rapid need and continuous operations. Private equity firms, which own a diverse portfolio of companies across various industries, have a unique approach to minimizing capital outlays, especially concerning IT strategy. This sets them apart from traditional companies and allows their portfolio companies to maintain commitments to delivering top-notch IT services internally while preserving cash and adapting to rapidly changing and uncertain economic conditions. This can have a profound impact on IT spending priorities.
The Private Equity Way
Technology strategies can be influenced by many conditions, from time-bound critical missions to platform development and continuous improvements. Private equity strategies focus on the primary goal of maximizing profitability and shareholder value, often by using other people’s money rather than their own cash reserves. This approach is rooted in the idea of leveraging investments to achieve growth without making substantial capital expenditures (CAPEX).
The private equity approach allows organizations to remain resilient in the face of economic uncertainty, positioning themselves to not only survive but to thrive in a rapidly changing business landscape. The key lies in embracing managed IT services and the cloud as strategic assets that empower innovation, cost-efficiency, and adaptability, to make IT a true driver of business success — regardless of economic conditions. Some of the key advantages:
- Emphasis on EBITDA: Private equity firms are acutely focused on Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). To boost EBITDA, they avoid tying up capital in IT infrastructure, such as hardware or data centers, which can be expensive and time-consuming to maintain. Instead, they seek ways to minimize operational expenses and maximize profitability.
- Leveraging Investments: PE firms are experts at leveraging their investments. They prefer to borrow money to fund acquisitions and growth initiatives. In the context of IT, this means they are more inclined to use financing options and managed services rather than making large upfront investments in IT infrastructure.
The Managed Services Model
One key aspect of the PE mindset that CIOs and IT managers can adopt is the managed services model. Managed services involve paying for IT services on an ongoing basis rather than making significant upfront capital investments. Here’s why the managed services model is appealing:
- Financial Flexibility: Managed services allow organizations to pay for IT resources as a service, spreading costs over time. This aligns with the PE approach of not tying up cash and using other financing options to fund growth.
- Reduced Risk: With managed services, organizations can scale their IT infrastructure as needed. This flexibility reduces the risk associated with making large upfront investments in technologies that may later become outdated or underutilized.
- Access to Expertise: Managed service providers bring specialized expertise to the table. This can be particularly valuable for organizations looking to stay competitive and agile in a rapidly changing IT landscape, or for those focused on improving their security posture and meeting regulatory and compliance needs.
- Focus on Core Competencies: By outsourcing IT operations to managed service providers, CIOs and IT managers can free up their teams to focus on strategic initiatives that drive business value rather than getting bogged down in infrastructure management.
- Focus on KPIs: Just as good PE firms hold the management of their portfolio companies accountable to Key Performance Indicators (KPIs), CIOs should hold their managed services partners accountable to KPIs focused on business outcomes. These KPIs may include ticket response time, ticket quality, number of issues detected and resolved, costs, system performance, and compliance.
Altogether, by eliminating the burden of upfront capital investments, reducing operational complexities, and focusing on their core competencies, modern organizations and their IT departments can become agile, innovation-driven powerhouses. Applying the private equity mindset in information technologies demonstrates that efficiency gains translate into tangible benefits such as cost savings, agility, and the ability to adapt to ever-changing business landscapes.
