PE firms are increasingly looking to create value in portfolio companies through operational improvements. One of the best ways to improve operations and create a scalable infrastructure, now and over the long term, is through technology. A robust IT foundation is critical to accomplish real results. Achieving this goal, while avoiding a lack of execution and additional capital expenditures, requires the services of a strong, dedicated provider of cloud and IT services who can act as a value creation catalyst.
Below are three levers for value creation through cloud and IT services.
Efficient Use of Capital
Studies have found that a significant cost reduction in IT is gained over time through the use of cloud technologies. A Hurwitz & Associates study found a typical range of 35 – 55% TCO reduction, depending on scale, for Enterprise Resource Planning (ERP) systems. Case studies from our portfolio companies and their clients have seen the reduction range between 20-30% through cloud infrastructure technologies alone.
Additionally, cloud services typically reduce capital expenditures (capex) investments by moving costs to a more variable cost or operating expense (opex) model. A company uses only the cloud resources it needs in the present, and scales up as it grows, thus alleviating the need to make a significant financial bet today without knowing the future growth and size of the company.
By reallocating cost savings and cash preservation to growth initiatives, the cloud’s benefits can be leveraged even further.
Best-in-class IT Infrastructure & Services
Cloud providers with the best capabilities can provide an efficient and stable infrastructure, effectively increase data and systems security, and mitigate risk. Compliance costs involving data security and business continuity will likely be reduced as well.
Cloud service providers will typically invest far more in physical and logical security than a single company would be able to spend to secure and monitor its own network infrastructure. In addition the fundamental inclusion of having experts monitor these assets 24/7/365 in the cloud are typically beyond a single company’s capability.
Partnering with the right cloud and IT provider means that companies do not have to reinvent their own cloud and IT strategy, but instead leverage the expertise of professionals who continually refresh their knowledge base by working with a high volume of customers. It’s critical to have a provider that can give a “white glove” approach to services and will give the necessary time, focus, and care at all stages of the IT lifecycle.
Growth Generation and Smooth Scaling
With a solid IT foundation in place, a skilled services provider takes the IT and cloud maintenance onus off of a company, allowing the company to focus on profit-driving core competencies and growth initiatives rather than just “running the business.”
Additionally, the right cloud provider will create a stable and scalable base so that tech-enabled process improvements can be implemented to greatly enhance operations. Additional software application and tech-enabled processes can then be layered on the IT infrastructure with quicker deployment, less business disruption, and faster integration with existing business processes.
One of the best benefits of cloud technologies for management teams come from the collaboration tools; the cloud can be relied upon to provide better communication across the company, increasing speed of execution and innovation. It helps a company scale smoothly and enable agility, providing the ability to adjust a business model if necessary and enter new markets faster, with reduced change-management pain.
Count on the Cloud for Value Creation
By effectively deploying and managing cloud technologies, a cloud service provider can create value in companies not only through using capital efficiently and creating a best-in-class IT infrastructure, and but also and most importantly providing a solid IT foundation to create opportunities for tech-enabled operational improvements.
Furthermore, a cloud provider with a strong track record and extensive experience with private equity companies, like Highcrest’s Shared Services Group, can best optimize the opportunities and success rate for value creation in portfolio companies.