Digital Maturity of Investments

3. Identification of Trends and Customer Behaviour

Customer insights, meaning quantitative and qualitative information about the target customers, are essential for measuring digital maturity and for ensuring the future security of the business model. Companies with an especially good understanding of their loyal and target customers are well positioned to optimize their marketing strategies in the upper funnel (such as by social media campaigns, programmed ads, search engine optimization (SEO) and search engine advertising (SEA)), to conduct marketing activities oriented on conversion in the lower funnel (such as through website optimization) and to concentrate on profitable customer loyalty initiatives (such as with the help of a Customer Relations Management (CRM) system).

Continuing with the example of the online tennis retailer, let’s say that they try to draw as many conclusions as possible from the data regarding customer transactions, customer demographics or seasonal purchases. Once the transactions have been consolidated, they hold a lot of valuable insights that can be used in marketing and sales campaigns to improve customer acquisitions, conversion and loyalty. The data generated from various points of contact with customers along the purchase process should be collected in a manner that conforms to data protection laws. It should be analyzed and displayed automatically by a key performance indicator (KPI) dashboard in order to ensure that the right customers are being addressed and flexible adjustments to the digital marketing campaign can be made. In the best case, adjustments should be made automatically so that adjustment and positioning of campaigns to the correct target groups will occur automatically based on data like age, gender, media behaviour or purchase behaviour.

4. Identification of the Optimization Potential of Digital Channels

The increased reach created by organic and paid advertising measures (such as social media campaigns) is important for ensuring the efficiency and flexibility of the value-creation strategy with a high return on investment (ROI) for each channel. In short, a precise understanding of a company’s own digital channels, knowing the company’s success statistics and evaluating the potential is highly relevant for all companies. By doing this, they will increase their online presence in the current markets and position themselves to reach more customers by increasing their prominence. Furthermore, digital channels can be used as part of a globalization strategy in order to develop an online footprint in new markets with less effort than through physical globalization efforts. For example, online tennis retailer could use their paid channels to increase their visibility quickly, appeal to new customer groups and penetrate international markets with even less organic visibility.

Improving this online footprint by optimizing digital channels is the key to increasing top-line performance. For example, an investor can analyze the performance of the digital channel for the online tennis retailer by evaluating digital success factors or digital statistics in order to determine the efficiency and scalability of individual online channels. Since the traffic and income originate from various online channels, understanding how customers will be reached at that time, how this has changed in past years and which channels are the most important drivers for the company’s growth is important. Another important issue in this context is the insight into how expensive the acquisition of a customer through digital channels is. This includes the number of employees and agency fees arising from this context as well as the advertising budget. From the investor’s point of view, the specific question is: How was performance over the last three years, and what should be expected over the next three to five years? This insight is very relevant, especially for digital business models that acquire customer popularity through social networks and collaborate with influencers. Increases of 10 to 15 percent of the acquisition costs per year are not uncommon due to increasing professionalism and the increased demand for influencers.

5. Evaluating the IT Infrastructure and Technical Scalability

A solid IT infrastructure is based on all of the components that put a company in a position to provide IT services for the employees of an organization. This infrastructure is a decisive factor for speeding up the company’s own digital transformation and enabling it to grow at the fastest rate possible. Companies with a comprehensive IT infrastructure will achieve significant competitive advantages. The quality and reliability of that system will define in the digital due diligence, how innovative the company can be, how much potential it has for growth and how well it can assert itself against the competition. Continuously optimizing the IT infrastructure is, therefore, a basic component for evaluating a company’s potential in the future.

For that reason, comprehensively evaluating the IT system and infrastructure of the target company is recommended before making an investment, in order to understand its dependencies and scalability, to identify necessary investments at an early stage and, of course, to see the company’s digital maturity. The IT infrastructure will differ from company to company and, as a rule, includes physical hardware and equipment (including computer centres), data storage, network systems, legacy interfaces, software, CRM systems, e-commerce shops, content management systems (CMS) and databases. The important issue in this context is that data silos are not used, but rather that the systems have been networked together so that the data points generated by the customer throughout the sales process can be analyzed from every direction. Naturally, the IT infrastructure also includes the human elements of an IT infrastructure, such as developers, development processes, IT technicians and network administrators as well as any dependency on external service providers. All of these components must be considered when evaluating the scalability of the IT infrastructure.

Digital Maturity as the Basis for Investor Decisions

In order to be able to use a company’s services from anywhere and purchase products online (regardless of location), digital business models are decisive factors not just for consumers. Their importance to investors is increasing since they significantly affect the company’s future capabilities. Because digital businesses are often complex, it is important to do due diligence testing that combines the three aspects of due diligence: Commercial, digital and technical. In order to be able to make a sound decision about all digital potential for growth, investors should first examine the status quo of the company’s digital maturity in a targeted manner. Focusing on the five points of digital demand, benchmarking digital performance, evaluating trends and customer behaviour, optimization of digital channels and evaluating IT infrastructure will especially reward the informed investor.

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