The AI Operating Partner: The Latest PE Portfolio Value Creation Role?

Technology operating partners have driven digital transformation and ensured technology investments deliver value. However, the rapid advancement of artificial intelligence (AI) has created a need for specialized expertise. Concerns that traditional tech-focused leaders may lack the depth to maximize AI’s potential have led some private equity (PE) firms to introduce a new position: the AI Operating Partner.

The "AI Operating Partner" role in PE firms is an emerging trend, reflecting the growing recognition that AI is a game-changer requiring specialized skills to strategize and deploy. AI will enhance operational performance and reshape business models and commercial offerings.

The Advent of the AI Operating Partner in Private Equity

In recent years, private equity firms have debated whether the Tech Operating Partner should come from a digital or traditional IT background, with some considering splitting responsibilities between “Digital” and “IT” Operating Partners. Despite this, most firms ultimately had Tech Operating Partners overseeing both digital and IT at portfolio companies (PortCos).

A similar debate is now happening around AI. Early evidence suggests the emergence of a new role: the AI Operating Partner. Large private equity firms have introduced AI Operating Partners, who can be full-time employees or part-time advisors. This shows PE firms' commitment to bringing AI expertise to their PortCos.

Smaller PE firms may not have dedicated AI operating leaders yet, but they are actively pursuing AI initiatives. Notable examples of AI adoption come from mid-market PE firms, which take a customized approach focused on quick impact. Speed to market is critical, with proof-of-concepts (POC) expected to take 2 to 4 weeks. AI startups play a key role, eager to gain clients and engage with private equity firms for rapid POCs. Incubators connect these firms with startups, creating a vibrant ecosystem for experimentation and fast learning.

The Background of an AI Operating Partner

We see three main archetypes for today’s AI Operating Partner:

1. Entrepreneurial Business Leaders: These individuals come from the entrepreneurial world, having founded or led AI-driven companies. They understand how AI can solve specific business problems and create AI-driven value propositions.
2. Technical Product Leaders: These individuals have both a commercial mindset and hands-on AI experience. They understand how to apply AI in specific business situations and can drive AI adoption within portfolio companies.
3. Executive Technology Leaders: These former IT executives have overseen the deployment of AI solutions in large organizations. They bring experience in scaling and integrating AI solutions into the broader tech infrastructure.

Where AI Operating Partners Are Seeing Early Wins

PE firms see the value of AI in their portfolio companies in two distinct ways:

1. Transforming Core Business Models and Products: AI impacts a company’s business model, products, commercial offerings, and core business processes. Examples include leveraging AI in credit card decision-making, fraud detection, and insurance claims adjudication. More advanced examples include embedding AI logic in SaaS products to improve functionality, such as adding AI to a healthcare agent in a health tech company to assist in matching patients with the right caregivers.
2. Using AI for Greater Operational Efficiency: AI Operating Partners have developed playbooks to improve the efficiency of functions like Finance and Accounting (F&A) by 25% through AI and automation. Similar gains are happening in customer service and other enabling functions, with AI being aggressively deployed in marketing, customer engagement, customer support, inventory management, warehousing, and legal.

Challenges of Adding an AI Operating Partner

While the AI Operating Partner role can bring value, there are several issues to consider:

• Complexity for PortCo Leadership: PortCo leadership has to work with more stakeholders from the PE firm, which might make the engagement more cumbersome.
• Overlap with Tech Operating Partner: The roles have interdependencies, which can sometimes lead to conflicting priorities and confusion around roles and responsibilities.
• Pressure to Adopt AI: An AI Operating Partner will force AI conversations at portfolio companies, which is useful as long as it does not create pressure to adopt AI without justification.

The Future of the AI Operating Partner Role in Private Equity

As AI technologies evolve and disrupt industries, more private equity firms will likely hire dedicated AI Operating Partners or expand Tech Operating Partners' roles to include AI expertise. The key to success is ensuring AI efforts align with business goals and do not overwhelm portfolio companies with added complexity. If managed effectively, the AI Operating Partner could drive long-term, sustainable growth for PE firms and their portfolio companies.

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