Will today's cash cow be tomorrow's dinosaur?

If you were thinking of investing in a business, you’d do some analysis first.

You’d look at its revenues, profits and margins and try to understand how sustainable they will be in the future. You’d take a good hard look at its products and services, their quality and how they stack up against their competitors.

You’d look at its customers and see whether there were enough of them and whether it depended on too few, large customers, for example. You’d want to know whether customers were happy, repeat purchasing and renewing longer term contracts.

You’d also look at the ‘softer’ elements to understand what makes the brand stand out and what it stands for. What kind of culture is fostered within the company and what employees as well as suppliers and customers thought of it.

You’d want to know what the strategy for growth was and whether the management team was capable of delivering it. How the sales pipeline was looking.

All sound research.

In the digital economy, companies are also valued on their digital capabilities and adoption of digital operations and methods. Increasingly, companies that have not adopted digital practices are not valued as highly as those that have, as they are not seen as sustainable - even in the medium term. They are not regarded as operationally efficient.

In terms of customer experience, digital is regarded as more manageable and measurable. Digital often allows customers to self serve - choosing when and how they engage with an organisation on their own terms. A digitally enabled company is regarded as more able to respond to customer needs, to the market and to threats and opportunities. It can use live data to make both strategic and tactical decisions quickly.

So business analysis has become a little different and some of the questions you’d need to ask have changed. Questions like: 

  • What trends and innovations are likely to impact the business in the future?
  • Does the Company have a clear digital strategy and the internal capability to deliver it?
  • What does the adjacent market landscape look like and are there any threats from seemingly unlikely competitors that could disrupt the Company’s growth?
  • Does the Company have opportunities, ambitions and ideas to disrupt its own marketplace?
  • How big a change will the business need to go through to compete? And is it prepared for change at scale? - Is the Company using data effectively operationally as well as using customer data; is it truly data driven?
  • How does the Company benchmark it’s digital performance and how easily does the Board access and engage with its KPI’s?

The nature, objectives and outcomes of due diligence have changed as have some components of the value creation plan - and of course the business transformation itself. Harnessing the right team to support these stages seamlessly is crucial. It’s not only the understanding of technology, but the real world appreciation and experience of the resources and capabilities required to make it happen. Valuing a company in a digital society is hard. Getting it to adopt new practices and adapt to a changed business environment is even harder. It really is a new culture within the Organisation as well as new tech and new operations that’s required. A new brand or at least brand proposition maybe necessary. Certainly a new mindset throughout the Organisation: especially at board level where there is likely to be slower paced adoption and considerable emotional as well as financial investment in practices and behaviours that have proved successful in the past - but are likely to fail tomorrow.

It’s not only the analysis and due diligence that has to take the digital environment into account. This needs to be connected to a practical assessment of the technology investment that’s required - and the capability and commitment of the Company’s leaders to drive the transformation through.

What to know more? Download Palladium’s white paper on the importance of digital in due diligence and its 4 step process to analyse, improve and future-proof a company’s ability to compete in tomorrow’s society.