Summary:

PE firms acquire companies, overhaul management, and streamline operations, yet revenue growth stays flat. Three problems explain this: they prioritize cost-cutting over innovation, lack a digital transformation strategy, and let portfolio companies operate in silos with no knowledge sharing. The fix: hire a Chief Digital Officer who oversees the entire portfolio and treats the firm itself as a platform for scaling digital strategies across companies.

I've spent 20+ years watching PE firms acquire our clients and seeing the aftermath.

PE firms purchase companies or brand franchises with the intention of streamlining them into profitable engines. Some acquire these brands at fire-sale prices, betting on turnaround potential. Others recognize untapped earning potential and believe the previous owners simply weren't extracting the full value available.

They overhaul existing management, try to streamline operations, implement standardized systems, and introduce new leadership. Yet despite these efforts, the new management often fails to outperform their predecessors.

Additional strategies follow: expanding into new markets, investing in R&D, implementing cost-saving measures, pursuing acquisitions or partnerships. Still, significant revenue growth remains elusive.

Why does this keep happening?

Recent data tells part of the story: 98% of private equity fund houses are in the process of digital transformation, yet only 7% have completed this journey. The intention exists, but the execution falls short.

Three Strategic Oversights in PE Portfolio Management

The pattern I'm seeing can be explained with three fundamental problems.

1. Cost-Cutting Over Product and Service Innovation

PE firms prioritize traditional cost-saving strategies over genuine service or product innovation. Real innovation requires design thinking, structured discovery, and validation frameworks. PE firms rarely have the internal capability to lead these efforts or even recognize when they're needed.

Here's the irony: innovation often already exists inside the company. The staff who just got replaced typically know the real issues.

They have ideas that management, budget constraints, or internal politics prevented from reaching the executive level. Even when good ideas did surface, proper innovation processes were missing: no business model validation, no ROI projections to justify the investment.

Design sprints and structured innovation frameworks unlock this trapped value. They surface ideas, validate them against business realities, and create defensible cases for action. The process often reveals that the answers were already there, buried under organizational dysfunction.

2. Absence of a Digital Transformation Strategy

Portfolio firms don't typically have a Chief Digital Officer or Chief Experience Officer on staff. Instead, they deploy change management personnel skilled at restructuring headcount but lacking a digital transformation vision.

They're missing the clear 3-5 year digital strategy or platform that integrates:

  • Customer experience
  • Brand transformation
  • Workforce optimization

A robust digital strategy goes beyond surface-level technology adoption. It requires integrating customer experience, user experience, and employee experience into a single transformation roadmap. Without this integration, digital initiatives remain fragmented and fail to deliver measurable returns.

Mid-size companies could achieve substantial growth with a well-defined digital transformation strategy. Large consulting firms like Accenture, Deloitte, McKinsey, and BCG generate substantial revenue from digital consulting because they've proven it works. These firms have built entire practice areas around digital transformation for a reason: the results are measurable and repeatable.

Large enterprises already know this and can afford these engagements. Mid-market portfolio companies get left behind. For VC-backed startups operating with leaner teams, the problem compounds.

More recently, AI has become central to these strategies. Not AI as a standalone initiative or a marketing talking point, but AI embedded within customer experience improvements, operational workflows, and decision-making processes.

PE firms that treat AI as a separate line item miss the point. The value comes from integrating AI capabilities into the digital transformation roadmap, where it can enhance existing processes rather than disrupt them for disruption's sake. AI-powered customer analytics, intelligent automation, and predictive modeling deliver value when they're woven into broader digital strategy. Isolated AI projects without strategic context rarely survive past the pilot phase.

3. Siloed Portfolio Companies With No Knowledge Sharing

The most overlooked opportunity is the firm's own structure.

When you talk to portfolio companies within the same PE or VC firm, you find that CMOs rarely communicate with other CMOs. C-level executives across portfolio companies operate in isolation. There’s no structured way to learn from each other's wins or failures.

This represents a massive missed opportunity. Portfolio firms possess an inherent knowledge platform across their portfolio, but they fail to leverage it. A digital executive would view the firm itself as a platform: a network where one company pilots a digital transformation strategy, validates the approach, and then rolls it out to other portfolio companies.

One company's successful customer experience overhaul becomes a template for five others. A failed experiment in one portfolio company prevents wasted investment in ten more. This would mean stress-testing strategies in one environment before deploying across the portfolio.

The concept extends beyond informal knowledge sharing. PE firms should establish a centralized intelligence function that enables real-time insights sharing across portfolio companies, identifies patterns and opportunities across industries, and surfaces best practices automatically. When one portfolio company solves a customer retention problem, that solution should propagate across the portfolio within weeks, not years.

Instead, each portfolio company reinvents the wheel, making the same mistakes independently. The collective learning that should be a PE firm's structural advantage goes completely untapped.

The Solution: Centralized Digital Leadership Across the Portfolio

Hire a Chief Digital Officer who oversees all portfolio companies.

This person evaluates each company's digital strengths and weaknesses, then compiles a coordinated strategy across the entire portfolio. They identify where AI can augment existing operations, where customer experience improvements will drive revenue, and where internal tools can reduce friction.

The scope of this role extends beyond advisory. A portfolio-level CDO should:

  • Conduct digital maturity assessments across all portfolio companies
  • Develop a prioritized transformation roadmap based on opportunity and readiness
  • Establish shared technology standards and platforms where appropriate
  • Facilitate knowledge transfer between portfolio company teams
  • Measure and report on digital transformation ROI at the portfolio level

Propane, Digital Agency - San Francisco
San Francisco, CA - 94110
415 550 8692