Key takeaways
Tech gaps in governance or resources can hinder innovation and growth despite heavy investment.
Understanding IT archetypes helps leaders bridge tech gaps to support growth and maximize value.
It’s no surprise that digital capabilities can drive stronger, faster returns, helping portfolio companies deliver on the investment thesis. After all, very few companies—private equity-backed or otherwise—achieve their sales, operational excellence and risk management goals without the support of underlying systems and applications that drive various functions at the company.
Less obvious is how often technology hinders value creation in portfolio companies simply because the current state of their technology does not align with their growth agenda.
Such gaps aren’t always easy to identify because every portfolio company’s approach to information technology is unique, with its own strengths and weaknesses. Beyond the actual components in the tech stack, many variables directly influence technology’s ability to drive, or hamper, value creation, including:
- Investment management, application portfolio management and enterprise platform convergence, as well as wider IT governance practices
- The role of IT in the identification and integration of innovative technologies such as artificial intelligence and robotic process automation
- IT service management capabilities and operational excellence
- Internal capabilities, including bandwidth and expertise
- Leadership’s overall viewpoint on technology as either a strategic enabler of growth or a back-office cost center
Unlock growth faster by classifying technology archetypes
Operating partners and portfolio company executives looking to leverage technology for innovation and growth can gain a competitive advantage by mapping the technology identity of each investment. Determining a portfolio company’s current technology archetype and understanding the associated attitudes and characteristics can shed light on what may be standing in the way of value creation. Based on hundreds of technology assessments performed every year, RSM has found that most portfolio companies fit one of three major technology archetypes: Conservative Adopter, Fragmented Intelligence or Undeployed Potential.
Archetype |
Characteristics |
Growth/value detractors |
Conservative Adopter |
|
|
Fragmented Intelligence |
|
|
Undeployed Potential |
|
|
Build a roadmap to better align technology and growth
As a PE leader, once you understand where a portfolio company falls on the technology archetype spectrum, it’s easier to identify the best next steps to close the gaps and remove value creation barriers. As portfolio companies address the underlying issues, they move toward embodying a fourth, ideal technology archetype—one in which the right systems, governance and resources enable alignment between technology and the growth agenda, driving significant gains for the business and its investors.
Archetype 1
Conservative Adopter
Start by balancing innovation with risk management
Companies that underinvest in technology often have risk-averse cultures or lack understanding of technology’s strategic value. While caution is warranted—particularly in regulated sectors like health care, pharmaceuticals, finance, energy and government contracting—overemphasis on risk can create inertia, stifling innovation and delaying adoption of modern tools. Stakeholders grow comfortable with outdated legacy systems, resisting disruptive technologies like AI. Ironically, clinging to unsupported systems can increase risk, exposing the organization to security vulnerabilities and operational inefficiencies.
Within these companies, the crucial next steps involve creating a more efficient, secure and scalable technology environment that supports the company's growth objectives:
- Engage stakeholders to educate and build consensus on the quantifiable benefits of modernizing technology and mitigating risks associated with legacy systems.
- Upgrade legacy systems and update or replace outdated technologies and applications with modern, cloud-native platforms that offer better support, reducing the risk of breaches and compliance issues.
- Phase upgrades to promote compliance and risk mitigation at each step.
- Implement integration layers or middleware capabilities to enable systems to communicate effectively, improving interoperability and efficiency and reducing data silos.
- Investigate and implement AI-enabled solutions to drive efficiencies within the business and IT operating model.
- Establish a data governance framework to establish data quality, consistency and proper management across the organization while addressing risk concerns.
A pragmatic approach to modernization—one that respects risk controls while enabling innovation—can help usher in healthy and strategic investments in technology. By methodically upgrading systems and aligning stakeholders around a shared vision for scalable, secure growth, organizations can use technology to drive value creation.
Archetype 2
Fragmented Intelligence
Create and implement a clear data governance and IT investment management framework
Without strong IT and data governance, companies often take a decentralized approach to technology, allowing departments to independently select systems. This leads to redundant applications, over-licensing and fragmented, outdated data across siloed platforms, stalling digital transformation and AI efforts. Reliable data becomes hard to find, consolidate or protect, and integration issues across a complex tech landscape hinder system interoperability. Despite investing in data and tools, these companies struggle to use them effectively, putting them at a competitive disadvantage.
To support strategic and agile decision making that will further the growth agenda, these companies need to move toward establishing a robust IT and data management environment that supports high-quality, reliable data:
- Implement strong IT investment and application portfolio management practices, including committee oversight and scheduled application rationalization, to proactively manage the intake of new systems into the environment.
- Implement strong data governance capabilities, recognizing that data governance is as much a cultural change initiative as it is a technical and data ownership issue.
- Educate employees on the importance of data quality and train them on proper data management practices to foster a culture of ongoing data stewardship.
- Reduce tech stack redundancies by identifying and eliminating duplicated capabilities, streamlining operations and reducing costs.
- Develop an integration architecture to enable systems to communicate effectively, reducing data fragmentation.
- Establish a unified data platform by pulling data from different systems into a staging environment, laying the foundation for optimized AI adoption.
- Establish clear policies and procedures for data entry, management and quality control to provide consistency and accuracy.
- Regularly clean and validate data to remove inaccuracies, outdated information and duplicates.
Prioritizing foundational IT and data governance and streamlining technology ecosystems helps companies avoid fragmented technology environments and transform scattered data assets into actionable insights—enabling smarter decisions, operational efficiency and sustained competitive advantage.
Archetype 3
Undeployed Potential
Create bandwidth and build expertise to focus on strategic technology improvements
High operational load coupled with resource constraints is the root cause of undeployed potential. These companies need to focus on optimizing existing IT investments and freeing up capacity through efficiencies, additional resources, or the strategic use of AI to allow them to identify, invest in and implement a technology plan that will help fuel growth objectives.
Under-resourced organizations often do best with a multidimensional approach to building capacity:
- Develop a clear investment and prioritization framework to identify the most critical technology initiatives that drive value creation and allocate resources accordingly.
- Strategically operationalize and capitalize on existing software platforms to drive efficiencies, enhance workflows, reduce reliance on institutional knowledge and promote scaling.
- Regularly review system updates to take full advantage of the most powerful features and optimize investments in existing systems.
- Streamline operations through process improvement roadmaps and leverage AI-enabled automation to reduce operational load on existing staff, freeing up capacity for strategic technology initiatives.
- Invest in human capital planning to identify and prioritize the resources needed to deliver on specific initiatives, which may involve pausing other initiatives to ensure that ultimately all are executed successfully and realize value.
- Conduct targeted hiring to bring in specific specialized technology skills such as AI and cybersecurity expertise.
- Build capability through investment in training and development programs designed to enhance the skills and knowledge of existing staff.
- Leverage temporary staffing solutions, contract workers and/or experienced consultants to address immediate resource gaps, accelerate project completion and drive meaningful outcomes—without losing sight of the need to build and retain strategic internal IT capabilities where required.
By strategically freeing up capacity in multiple ways, companies better position themselves to activate their technology investments without incurring additional operational strain and can refocus on initiatives that directly support growth and long-term value creation.
SWIPE TO VIEW
Understand your portcos’ archetypes to gain strategic advantage
To drive value creation, technology must support the growth agenda. If gaps exist between the two, taking the right steps to close them quickly can give your investment a critical edge and move your companies closer to embodying the ideal technology archetype—one in which technology is an advantage and not just an expense. Taking the time to map this journey gives you the insights you need to optimize any company’s IT and significantly increase your portfolio value.
RSM contributors
-
-
Craig CoffaroIT Due Diligence Leader -
David BrassorManaging Director
Related insights
