Cathay 2 Cents: Buy or Build a Digital Strategy – How Any Company Can Successfully Go Digital

October 20, 2021

We have all heard that COVID has accelerated digital adoption, but does a digital strategy make sense for all types of companies?  What about companies that have traditionally been more ‘offline’ than ‘on’?

Although it’s not always easy to make the jump from offline to online, implementing a digital strategy can benefit companies no matter their stage, size or sector. From fashion or beverage companies to B2B products and services, digitalization is accelerating across our private equity portfolio.  At Cathay, we work hand in hand with our companies across North America, Europe, and China to accelerate their businesses with a comprehensive digital strategy and are fortunate to have the support from our venture team Cathay Innovation that invests in the latest emerging technologies across the world. 

Below are a few lessons we’ve learned from helping companies navigate the challenges and opportunities of digital transformation. 

The Imperative to ‘Go Digital’

The COVID-19 pandemic has impacted every facet of society. Companies of all shapes and sizes have experienced serious challenges and setbacks and have had to evolve in order to survive.  From deploying a completely remote workforce to engaging customers via contactless delivery, leaders with a strong digital acumen have better absorbed (and adapted to) the initial shocks of the pandemic. They pivoted their strategy, accelerated their transformation, and positioned their companies to successfully compete in this new world. Moving forward, companies that are digital leaders will be the ones that not only survive but thrive, taking advantage of opportunities with new business models fueled by various technologies. 

However, it’s important to understand that technology is only part of the equation. Successful digital transformation requires cultural and organizational shifts that empower new ways of thinking, working, and problem-solving.  

What is a digital strategy? Do you have to use AI and drones?  

The main goal when implementing a digital strategy is to leverage technology to improve processes, operations and add new business opportunities.  A company does not have to be “high-tech” to take advantage of the benefits today’s technology can offer. Successful digital strategies can bring additional revenue streams and expand reach to new and existing customers, and more and more it is a ‘must have’ vs a ‘nice to have’ traditionally offline and non-tech companies. 

Don’t Try it Alone 

No one said going digital would be easy. Companies, in order to successfully carry out their digital transformation, need more than technological implementation and operational experience. Leaders must surround themselves with the right experience and resources to plan and integrate digital innovation into a long-term enterprise strategy that considers technology both as a tool and driver of long-term company objectives. From our experience, it is essential to have partners whose interests are aligned and who share a long-term vision.  At Cathay, in addition to our private equity teams who have decades of financial and operational experience, our innovation team has a wealth of knowledge and expertise with emerging technologies and helping multinational companies – many of whom are limited partners of our funds – with their digital transformation. 

To Buy or Build?  

As an illustration, take two of our portfolio companies that took two very different approaches in the last 15 months in adopting digital strategies to adapt to their respective markets and the changes brought on by the pandemic.  One built its own suite of digital capabilities by bringing in the right talent while the other acquired a strand-alone digital entity and integrated it into its existing business.

Build It, Strategically 

The first example comes from a high-growth fashion company that we invested in a few years ago. This company was historically built on a wholesale distribution paradigm and footprint. We recognized in our investment thesis the need to climb the direct-to-consumer curve both through a global retail strategy as well as a focus on digital transformation. Of course, the pandemic accelerated our plans for the latter with leadership and the company’s board,  acknowledging the urgent need to digitize the business in 2020.

We helped the company think through long-term objectives and nearer-term priorities, quickly recruiting a board member who was both digitally savvy and experienced as a fashion operator. By bringing her in, we were able to strategically and efficiently allocate resources to help them withstand the pandemic-induced closures of brick-and-mortar channels. Of course, it’s also imperative to bring the right expertise in-house to not only ensure smooth execution but to adapt the strategy over time given consumers’ constantly evolving needs. This led us to accelerate the recruitment of a new Head of Digital to the company who brought on an incredible skillset and experience that enabled him to hit the ground running. Overall, we helped the company do it the right way by moving along the digital curve with its own vision and on its own terms.  

And our efforts were successful: the company went from close to zero to 20 percent digital sales in just one year, with the roadmap and resources to further grow that percentage beyond any “COVID-bump.”

Buy It, But Focus on Managing Change

Another portfolio company – a B2B products and services platform —has historically sold its products through offline independent reps and dealers. When COVID hit, their market was largely shut down, so we worked with them to develop a plan, knowing that the space was quickly shifting channels from B2B to B2C. And B2C purchases were clearly being made through e-commerce as a function of lockdowns and stay-at-home orders. 

Instead of building its own capabilities, Cathay and the company’s management sourced a small e-commerce acquisition target that brought a completely new channel and skillset to the company.  We structured and closed the transaction, all virtually, during the murky days of 2020 when COVID was causing incredible uncertainty. We gave confidence to the company’s management team in bringing on this new channel while guiding them through hiring additional e-commerce talent to oversee the integration of the two companies. In tandem, having previously made a European acquisition within this platform investment, the European subsidiary leveraged learnings from the e-commerce acquisition and launched a parallel e-commerce site for its local market that performed well above expectations. 

Implementing a digital strategy while integrating a newly acquired company can be a bumpy road at first. With so much going on at once, it is important to communicate the value that will be captured from the newly combined organization and make the necessary changes to the company’s business operations, people, processes, and structure. It’s important to make sure that culture is aligned —teams adapt quickly as long as they have the right mindset.  All in all, the switch to digital and successful blending of the two organizations have been beneficial to the business and will be integral to creating a more valuable company. 

Parting Thought

Digitalization isn’t about disruption, it’s about adaptation. As private equity investors, we serve as the trusted partner to management teams to impart a sharp strategic focus, an impartial lens of value creation, and where appropriate, change management. One clear advantage of the private equity model is agility and speed, to quickly react to market challenges and opportunities. In a sense, the pandemic has been a true litmus test of this, with companies needing to evolve faster than ever due to unprecedented market conditions, often with digital being an obvious imperative. 

While an established company can’t go digital overnight, the transformation can be navigated efficiently and without undue organizational strain if done well.  Consider your options. Choose the strategy that makes the most sense for your business and your culture and bring in the right people and resources to make it happen. While it may seem like a daunting task, companies of all sizes can greatly benefit from implementing a well-thought-out digital strategy.