Why most tech investments fail - and how to get them right
In private equity, technology isn’t just a support function- it’s a strategic differentiator. At SuperReturn CFO/COO, Lionel Hill, CTO at Permira, explained how the impact only happens when tech investments align with both business and technical strategy.
Hill uses a simple yet powerful framework to evaluate technology decisions: Fear, fact, and faith.
Fear-based investments: The must-dos like cybersecurity or critical upgrades, where the risk of not acting outweighs the cost.
Fact-based investments: Measurable initiatives with clear ROI, like productivity or process improvements.
Faith-based investments: Bold bets on innovation that can’t yet be quantified but may redefine the business. “The magic,” Hill says, “is in getting the right combination of all three.”
The next phase of AI
Hill also breaks down how AI has evolved from novelty to necessity and why its next leap will be transformative. “We’ve moved from the chat stage of AI, to the assistant stage and now we’re entering the agentic phase, where AI will start completing entire jobs for us.” From transcription to workflow automation, these advances are already reshaping productivity across the industry. But, Hill cautions, none of it works without solid foundations. “However great the technology is, if the underlying data is rubbish, it’s never going to be successful.”
Discipline meets innovation
In a world chasing the next big thing, Hill’s approach is grounded but forward-looking: “You need to be disciplined, but you need to be innovative. Be ready to take risks but also ready to walk away when things aren’t working.” For private equity firms balancing risk, technology, and transformation, it’s a simple but powerful reminder: disciplined innovation wins more than it loses.
Full transcript:
I think technology is definitely making a difference in our industry. However, to maximise its impact, it must be aligned with a strategy. That strategy should encompass both a business strategy and a technical strategy. If you align with both, you can achieve great impact. If you fail to align with either or only align with one, chances are you’re just chasing trends and wasting money.
We have a shorthand for categorising technology investments, which is three words that begin with "F": fear, fact, and faith. A fear-based investment is something like cybersecurity or upgrading to Windows 11, you do it because you’re worried about the consequences of not doing it. Nobody really questions the ROI for these types of investments. A fact-based investment is one where you clearly understand the return on investment, such as achieving a 20% productivity improvement by implementing a specific solution. These investments are measurable and predictable. Then, there are faith-based investments, where everyone believes something will be great, but there’s no clear way to measure or assess its impact. You have to make some of these investments, but the key is finding the right balance among all three types. You can’t have 90% of your investments based on faith, as that would lead to poor outcomes.
If I were to break down AI, I think it has enormous potential, especially generative AI, which is already realising so many amazing things for us. We think about AI’s evolution in three stages. First, there’s the chat phase of AI, which emerged about two years ago and was brilliant for tasks like translation and document writing. Then, there’s the assistant phase of AI, where it interacts with your own data. Now, we’re moving into the AgTech phase of AI, where it performs entire jobs for you. I think this phase is the most amazing use case. One of the most widely used applications of AI today is recording and transcription, which provides enormous time savings and insights.
Fundamentally, whatever you do with technology always boils down to the quality of the data. No matter how great or clever the technology is, if the underlying data is poor or badly organised, it will never succeed.
In our industry, I summarise success in two words: discipline and innovation. What does that mean? It means you have to be willing to take risks, but those risks must align with a strategy. You also need to be ready to walk away when things aren’t working, which might involve cutting spending or abandoning certain initiatives. Disciplined innovation is key, and if you embrace it, you’ll likely find that you win more often than you lose.