Digital Governance

Corporate governance in a digital world

“Digital transformation is about people, not technology”

Swedish investment firm EQT has a team of 60 digital accelerators, catalysing the transformation of their 70 independent portfolio companies. When digital transformation is made positive for both staff and customers – that’s when it becomes effective”, says Sven Törnkvist, head of the group. 
Pilots have been used to trigger curiosity and engagement, and are viewed as investments in learning. Now the portfolio companies queue up for support in their digital transformation.

Investing in digitalisation

After over three years in the investment company EQT, Head of Digital Business Development Sven Törnkvist can show a long list of digital success cases amongst the portfolio companies. But when he was recruited back in 2016, there was no set role and little instruction. His task was to work externally with EQT:s portfolio companies. ”There was no apparent mission, but a vague understanding that digitalization means great risk, and could be a threat for EQTs portfolio companies. But it could also mean great opportunity for value creation, if you do it right.”

Regarded as a catalyst to value creation, Sven Törnkvist was one of three digital recruitments: At the same time, EQT hired an internal CDO, who was to help the internal organization through a digital transformation. “You can’t preach with authenticity and credibility unless you’re part of the journey yourself”, Törnkvist says. The third recruitment was a manager focused on building what is called the EQT Mother Brain, a platform designed to help EQT deal teams predict the next success using data and machine learning.

Pilots pave the way

The first thing Sven Törnkvist did in his new role was to analyse EQT’s portfolio companies and identify a few cases that could work as pilots. His strategy was to deliver results, and that way attract other companies wanting to make the journey. 

One of the first pilots was pest control company Anticimex. The company had a fairly old school approach to sales, Sven Törnkvist explains. With Törnkvist’s guidance, they invested in a new process, testing if a digitally enabled go-to-market would fly. It did.  Anticimex had already started a digitalization using IoT-technology in their rat traps. EQT Digital helped them innovate around how this data could be utilized and brought to market. 

Word spread, and Sven Törnkvist was soon managing contacts with 16 portfolio companies, all wanting his help. “It was chaos”, he remembers. To respond to demand, Törnkvist created a team – the first iteration of what was to become EQT’s digital business development team.  Initially the team had just three members. Today, EQT Digital has grown into an organization of 60 people with offices in EQT’s key locations: New York. Münich and Stockholm. The team is a mix of senior and junior staff, which has been another key to success.

“You can’t send a 25-year old to convince company leaders to do something. You need people with battle scores. A large part of our competence is having made mistakes. A clever person avoids making the same mistake twice. A wise person looks at others and avoids making the mistake the first time.”The senior staff members maintain contact with the portfolio companies, while junior staff is focused on innovation and creating scalability. 

The skills of the team span a wide range, from the technical field of CTOs and CIOs to areas that fall under a CMO or CDO. They get involved in innovation and cyber security, as well as digital marketing and lead generation.

The troika governance model

EQT is a growth investor – and EQT Digital’s task is to enable growth through digital transformation. When an EQT portfolio company wants help from EQT Digital, the request has to be sanctioned by the top leadership of the company. An important part of the EQT governance model is the so called troika – a forum consisting of the CEO, the chairman of the board, and the EQT partner responsible for the portfolio company. The troika follows the company closely, though decisions are made by the board. Initiative to work with EQT Digital has to come from, or be approved by, the troika. 

Sometimes EQT Digital takes initiative to a co-operation when they see an opportunity in a company – but it must always gain the support of the troika.“We are only advisors, helping to maximize value creation. We can’t force a portfolio company to do something. We need to be good at communicating what we can do, and at convincing them to work with us. As our track record grows, this clearly becomes easier.” A co-operation often starts with a pilot, to gain proof of concept. If that turns out well, they team proceeds. Any investments required are carried by the portfolio company.

Impact of EQT Digital

What impact, then, does EQT Digital have on the portfolio companies they work with? Sven Törnkvist explains that in some cases, they accelerate an already ongoing transformation and increase its precision.“We may increase the speed or diminish the risk of mistakes. In other cases we may have caught sight of something that a company have not thought of themselves, and we function as a catalyst. We can also recommend a new partner in digital marketing, which can bring remarkably better results.”

One example is Belgian industrial filtration services company Desotec, that have transformed their sales and marketing process.“They have moved from a pretty traditional model with service contracts, to a very modern go-to-market model with marketing automation, and a CRM that is digital sales enabled. They now have good tools and revamped processes.” With Desotec, it was EQT Digital that convinced the management that going digital was the right thing to do. But they were not hands-on during implementation. “Desotec were extremely good at execution, so they took it forward on their own”, Törnkvist explains.

Another case, Eaton Church, is a premium shirt maker that was dependent on wholesale, with department stores as primary sales channel. They had a successful business, but it was not growing on par with its potential.“We saw that e-commerce was a growth potential for Eaton. We advised them around new technology and helped them recruit internal talent. We also helped them find a new partner in marketing, which delivered great impact.” 

Organic approach essential to success

One reason that the EQT initiative for digital transformation has been so successful is the organic approach with testing and doing pilots, Törnkvist reflects.“If we had set this up top-down and started by building a team before we saw the demand from the portfolio companies, I don’t think it would’ve worked.”

Since demand for help is constantly higher than the team’s resources, EQT Digital has created a process for selecting which companies to work with. In quarterly sprints, EQT’s investment professionals can nominate companies for receiving advice. The cases can be about increasing operational efficiency, creating new business, or revamping sales and marketing.

EQT Digital judges whether the nominations would require medium or large engagements, and select which ones to work on the coming quarter. They have developed well defined work streams, and work sprints are set up with clear targets for each quarter. “At the end of the quarter we check if we have momentum. Are we making things happen? If not, we pause and bring in another portfolio company, with a higher potential for value creation.”

Methodology exported to other processes

“We prefer cases where we have the right conditions to do that. Where we have the support of macro trend and internal transformation, to accelerate growth in a company.”

The value of what EQT Digital has created is yet to be fully explored. Their methodology for evaluating the digital opportunities in portfolio companies will be used in other parts of EQT. The methodology is used in due diligence processes when analysing companies before an acquisition.

“Digital transformation is about people”

When we ask about what he’s learnt so far from the EQT digital journey, Sven Törnkvist starts by explaining what he took with him into the process, from his previous experience at Ericsson, Google, and tech start-ups.“I have a respect for how difficult digital transformation is. There are several types of legacy: tech legacy, organizational legacy, process and cultural legacy. Tech legacy is the easiest to change. Culture and organization much harder.”

To succeed, it’s vital to make digital transformation into something positive. To start by using digitalization to make save money through cut-downs is seldom the right way to go, unless the situation is critical. “Our approach is that a digitalization should be positive for the company’s staff and customers. And, in the long run – positive for the stockholders as the company is valued higher, grows faster, and gains more customers that spend more.”

When asked what advise he would give others ready to embark on a digital transformation, Törnkvist answers that the most important thing to understand is that digital transformation is about people.
“Technology is far down on the list of challenges. It’s about people, about cultural legacy, process legacy, talent legacy and sometimes a lack of curiosity. Use pilots to spark curiosity. And look at the pilots as investments in learning, rather than talking about payback period. The output of pilots is the basis of making decisions.”

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