Intelligent automation can also enable significant working capital improvements in portfolio companies. Cash flow being a key driver in value creation in private equity, efficient working capital management can unlock significant value in portfolio companies, thereby driving portfolio returns. For example, we collaborated with a leading private investment firm to prioritize its working capital by leveraging a state-of-the-art intelligent workflow that enabled realization of cashflow improvements worth US$1 billion across its portfolio. Deploying intelligent automation in order-to-cash processes of portfolio firms can enable accelerated customer billing, optimized collections and more streamlined dispute management. On the payables front, AI-driven categorization of vendors by payment terms and automation of procure-to-pay processes leveraging robotic process automation can bring improvement in procurement processes and costs. Similarly, AI driven demand forecasting and automation of procurement processes can have significant reduction in inventory levels for portfolio companies.
Intelligent automation in the next and beyond for private equity portfolios
Benefits of intelligent automation deployment in portfolio organizations go far beyond financial performance improvement. For instance, emissions control in industries like oil and gas and power and utilities has been a major source of contention. There have been several emissions-related accidents that have resulted in substantial losses — both financial and reputational, for these organizations. Intelligent automation can enable continuous monitoring of the hazardous emissions and use machine learning-enabled algorithms to get data-driven forecasts of emissions. It can seamlessly forewarn the HSE (health, safety, environment) personnel in case the emission forecasts are expected to breach the predetermined thresholds. This transforms the approach for emissions management from being reactive to being proactive. Such a change can lead to lower environmental risks for portfolio organizations as well as private equity players. Similarly, by automating standard processes, intelligent automation has unleashed what is called removal of the bot from the human, referring to the automation of repetitive and mundane tasks, thereby enabling employees to focus on more creative, investigative and value-adding activities. This is enabling boosting employee morale, quality of work life exponentially across organizations.
With traditional levers of value creation approaching maturity, intelligent automation-enabled digital interventions can offer unprecedented opportunities for private equity firms to drive transformation of their portfolio companies. Bearing in mind the enterprise-wide impact that it has, digital maturity and potential are important factors to be considered in evaluating and valuing target opportunities. Be it driving cost optimization, better working capital, reduced risk of operations or improving customer and employee experience, intelligent automation has proved to be a game changer in the private equity space.
(The article first appeared in Economic Times CIO on 18 March 2021.)