Optimism regarding new PE investments in middle-segment companies is the order of the day. In a market awash with liquidity, PE companies continue to hit new record levels of investment, even with the risks associated with inflation and the potential rise in interest rates for this year. According to PitchBook, 2021 ended with approximately 6,000 agreements totaling USD 787 billion. Both figures constitute a historic high.
Specifically, software companies are the segment with the highest possibilities of attracting PE investments. According to the report, said investments –particularly investments in software– are estimated to grow from USD 50 billion in 2021 to USD 120 billion in 2025. That is no surprise. The industry generated USD 968 billion in 2021 and will grow at 11% a year until it reaches USD 1.49 trillion in 2025.
PitchBook found an increase in the number of complaints related to faults in the IT area, mainly concerning the failure to reach certain milestones stipulated in the agreement: costs are higher than expected, or there are outright faults in the project. In general, these problems arise when there is a core IT project halfway through completion at the time of the sale. In this promising context, the need to make progress in terms of the digital transformation will not only increase chances; it will also decrease the risks.
Several elements are taken into account when it comes to determining the economic valuation of a company. Today, technology projects are the most critical adjustment variable. In an increasingly digitized world, where dependence on technology continues to grow, no one can doubt the importance of charting a serious, safe, and steady course towards modernization or transformation.
But charting the course is not the same as navigating it. In addition to this problem, one of the biggest challenges in the history of organizations is obtaining and retaining human talent. Paradoxically or not, in a world of high automation, robotics, and artificial intelligence, human capital is scarce (in almost all professions, but especially in technology).
Two data points give us an indication of how significant the shortage is and how quickly the problem grows: employment in the technology industry in the U.S. had expanded to an estimated 140,000 jobs by October 2021; that is, 34% more than in the same period in 2019, according to ComTIA.
The risk associated with the lack of qualified personnel in companies is rising. In some cases, the talent lags behind technological advance, and, despite ongoing training initiatives, it is difficult to bridge the gap. In other cases, the software or the technologies used become obsolete, and no professionals can manage them. Or, if there are professionals available to manage them, companies will be very dependent on them, at a very high cost, as they will only contribute the value of their field of expertise. It is tricky for organizations to attract the necessary talent in other cases. Young professionals look for constant challenges and want to work with multiple technologies and various challenging projects. So, recruiters find it difficult to attract talent, which is becoming a growing issue.
But there are possible shortcuts on this uphill road. And they are within reach of any organization. They are alternative solutions that allow companies to circumvent difficulties such as the lack of talent or technology and not understanding their business objectives, particularly considering that there is a lot of experience regarding this issue, and a lot of ground has been covered.
Time to embrace business composability
Advancing in the universe of digital businesses is not just about installing software; instead, it is about incorporating the concept that Gartner calls “business composability”. It is not a new idea in the business world. Somehow, most companies have already incorporated some of the principles. Companies need to understand it and bring it to the strategic and organizational level, increasing the efficiency of operational models.
In Gartner’s definition, business composability consists in applying modularity to any business asset (people, processes, technologies, and even physical assets) so that company leaders may “recompose” them quickly, simply, and safely to generate a new value in response to any eventual disruption.
As a matter of fact, at Making Sense, projects start with a discovery stage, that is, a repeatable and scalable analysis that involves an exchange between our team and our partner’s teams. Technology, business, and design experts are there, not just to determine the requirements and turn them into solutions. Instead, the purpose is to rethink the business in a forward-looking manner. We can now consider projects and processes that embrace the principles of business composability, and we can add value to the early stages of the process, always bearing in mind the company’s strategic plan.
Technology plays a pivotal role in constantly defining, executing, measuring, and improving composable strategies. Technology is one of the three pillars on which composability rests: the other two are culture and business architecture.
There are two roads. One of them takes us straight into the future to seize some of the many opportunities resulting from PE investments in mid-sized companies. The tools are within reach: this is the right moment for the country from the economic point of view, there is liquidity to invest, and there are methodologies to execute the plan. Additionally, specialized strategic partners can lend their support: Making Sense offers its partners strategy, talent, and experience. The other road leads to obsolescence. The speed with which the world and industries transform themselves does not let up. Nor does the need to reinvent your business. The decision is straightforward. There are no excuses… do not wait to be the next Blockbuster.