Kerim Turkmen, partner and head of the services sector at MidEuropa, discusses how the firm uses digitalisation as a value creation tool.

What are the benefits of having an effective digital strategy?

The benefit of having a digital strategy is that without it you are on your way to becoming extinct. Technology has always been an enabler and a source of efficiency improvement for businesses. However, the utility of technology for both consumer and B2B businesses has been changing rapidly. The proliferation of smartphones and a multitude of mobile devices that started over a decade ago, coupled with ubiquitous connectivity and growing computational capacity, has meant that all people and businesses interact much more through digital interfaces. Enterprise workloads and consumer, as well as business interactions are moving onto the digital environment.

The recent pandemic has only accelerated this trend. Technology is increasingly a core engine enabling changes in business models. This means that without an effective strategy to address and capitalize on digital channels and interfaces, it simply isn’t possible for businesses to be successful anymore. So, digital strategy is really a matter of survival, not a nice to have.

How does MidEuropa assess a business’ digital readiness pre-deal?

Our approach is always tailored to the deal. There is always a fundamental technology assessment, which involves review of the technical architecture, infrastructure and the processes, as well as the roadmap. Here, we use a combination of MidEuropa’s network of experts including digital experts, external advisors, as well as our operating team. The aim of this review is to identify any technology debt that will need to be rectified early on in our investment lifecycle.

The most important element, however, is the people. We look for the right culture, capability and capacity in the leadership team. Having the right technology in place and not having material technical debt is of course important, but not sufficient. It is more important to have the right talent, which is increasingly harder to attract in a competitive market. We look for a team that has an agile culture, willing to adapt and grow in changing environments. We look for the right grouping of capabilities within the team and assess if teams need augmenting to achieve the total capacity required to deliver our value creation plan.

Additionally, as a firm, we always build on our incremental knowledge pool, during work on new investment opportunities and portfolio companies. This knowledge is accumulated, not just in our deal teams, but also in MidEuropa’s operating team, which aims to industrialize our approach for both new deals and existing portfolio companies.

How do you work with portfolio companies to drive the digital agenda?

The way of working is always agreed at the time of MidEuropa’s investment, by articulating and starting to implement a value creation plan. This allows debate, brings clarity to expectations, and aligns the entire team behind a common goal. The value creation plan is also translated into an operating plan, to ensure timely execution. Wherever needed, we bring in domain advisors and MidEuropa’s operating team for support. We augment management teams and focus on hiring the best talent in our region and internationally.

Most of our deals involve material investment into digital infrastructure early on, such as upgrading ERP / CRM systems, creating a central data warehouse, implementation of digital tools, as well as hiring new team members. This allows us to gather momentum more early on.

What are the challenges you have faced while implementing digital transformations?

The biggest challenge is attracting talent. This is increasingly difficult in a very overheated market in the technology space, where compensation alone is not sufficient to attract the best people. This is why we work on organisation culture, so we can compete on softer elements, such as the attractiveness of the workplace environment, having flat hierarchies, open communication and offering exciting projects.

The second biggest challenge is to ensure that the whole organisation works as one team, in particular ensuring that the IT organisation works in partnership with the commercial team. The role of IT organisation as pure support for commercial is no longer valid. Even in more traditional businesses, the customer proposition and service offering is heavily intertwined with digital infrastructure and capability. Hence, getting not just the right culture, but also the right organisation set-up and way of working is critical.

Overall, how does digitalisation fit into MidEuropa’s value creation strategy?

Digitalisation is an essential part of the MidEuropa toolbox. It helps enhance revenue growth and business quality. Superior digital capability enhances growth, by allowing us to offer differentiated services, such as a courier business being the first to offer contactless PIN on glass payment functionality, or an ecommerce business using timely data analytics to provide next-day delivery for an expanded selection of products.

Digital capability also enhances the quality of a business, for example by using customer data and omnichannel services to reduce churn and increase customer lifetime value. Even our more traditional businesses such as traditional grocery retailers, increasingly rely on technology to harvest valuable customer data in order to provide a more tailored customer offering. And then there is the more subjective but still very material valuation rating improvement.

Over time, our mind set has evolved to see digital investment as a way to enhance growth and competitive advantage with new and better services, as opposed to just achieving operational efficiency and cost optimisation. We believe we need this approach as a firm to remain competitive ourselves.