How Private Equity is Mandating Change
Enterprise software companies and ISVs have demonstrated incredible resilience during the pandemic with the deployment of playbooks designed to adapt and accelerate recovery. These software companies are evolving by realigning their product portfolio to meet future customer demand, offloading unprofitable assets, and driving their digital transformation initiatives. Software companies across the world are accelerating product development by leveraging digital capabilities such as Artificial Intelligence (AI), Machine Learning (ML), automation (RPA and Low Code/ No Code), Big Data and analytics, and Cloud-native technologies to deliver best in class customer experiences and efficient maintenance.
Eager for growth, private equity (PE)- owned software companies are leading this trend. With fresh fund infusions through primary/secondary buyouts or recapitalization they are mandating product innovations, modernizing existing product suites, expanding platforms to include new products and scaling engineering, product and GTM teams. For example, one of the focuses of software companies has been building AI capabilities into existing products as well as new developments of AI/ML-enabled products to drive product acceleration. Incidentally, AI companies raised a record $33B in equity funding in 2020. As commercial applications of AI and automation scale rapidly, enterprise software companies are looking to overhaul to become digital-first.
With deep change management experience, PE firms traditionally deploy a distinct set of value levers across growth, cost and product strategies for enterprise software companies to generate higher returns. Zinnov has investigated over 100 PE software exits on the different value creation levers they applied to unlock value from their enterprise software investments. Revenue Enhancement was found to be pivotal in unlocking value, used in a greater number of deals compared to other levers, such as working capital and cost optimization, capital efficiency and tax optimization. Digging deeper, product acceleration (in portfolio expansion and modernization) takes a comparatively low time to create an impact in unlocking value, while being easy to medium in ease of execution, when compared to the other drivers of revenue enhancement.
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Challenging Assumptions and Misconceptions
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When committing to a bimodal development strategy that seeks to reap the dual benefits of modernization and sustenance, it’s critical to challenge some of the assumptions of mature software development that may be ingrained in the culture. The differences between the mature and the modernized approaches, as shown in Figure 4, are significant.
In the past, function-centered design resulted in the development of an end-to-end monolithic codebase, with information restricted within various departments. Instead of function-centered design, modernization is about creating distributed user-centric experiences. Information and code is no longer siloed in individual departments, because your user platform and the business capability platform are now loosely coupled.
For example, there might be data that is being transmitted from sales, marketing, or customer support. All of it can exist together at the “Experience (X)” level, while business capabilities are also performing necessary functions in the background. By having multiple different elements in the “Experience (X)” platform, you can make them completely user-centric without being concerned about their impact on the business functions.
Similarly, while centralized databases were the previous standard, these databases tend to only be good at one thing—which can hinder innovation, iteration, and the creation of new value delivery.
On the other hand, distributed databases enable each microservice or service to query its own databases, improving performance and latency without impacting other services.
Instead of centralizing and creating lots of interdependencies that need to be tested as new code is added, modernization is all about decentralizing and breaking the codebase down into the smallest possible elements through microservices. Instead of coupling IT compute, storage, and network needs to the product’s requirements, it’s about decoupling or loosely coupling using software to allocate resources dynamically as needed.
Most importantly, using multi-cloud means you can consume whatever resources are needed to ensure optimal performance of the software product. Your code no longer needs to be limited by a finite, centrally managed resource; it’s able to leverage multiple clouds that can be used as a commodity, enhancing agility and hyper-scalability.
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Putting the Two Pillars of Modernization into Action
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Product Modernization Across
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Challenging Common Assumptions and Misconceptions about Modernized Product Development
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Product Modernization Across Three Platforms
Modernization is not an all-or-nothing, end-to-end proposition, nor does everything need to be accomplished all at once. Modernizing has levels, each of which offers benefits. They can be addressed in a stairstep fashion to the point that it satisfies your business purpose—and passes muster with your cost-benefit analysis.
Next steps
Re-imagine software products
Leverage our expertise in next-gen MACH software architectures to modernize your software products quickly.
Learn More
Rejuvenate mature products
Focus on improving revenue, efficiency and customer delight with our intelligent sustenance engineering framework.
Learn More
Re-group with our experts
Schedule a discussion with our modernization and sustenance experts who can help you chart a path forward.
Contact Us
Next steps
Re-imagine software products
Leverage our expertise in next-gen MACH software architectures to modernize your software products quickly.
Learn More
Rejuvenate mature products
Focus on improving revenue, efficiency and customer delight with our intelligent sustenance engineering framework.
Learn More
Re-group with our experts
Schedule a discussion with our modernization and sustenance experts who can help you chart a path forward.
Contact Us