3 data priorities for organic value creation
Organic value growth enhances private equity firm performance, ensures steady expansion, fortifies leadership and secures the future via strategic positioning. With these three data priorities for organic value creation, we share essential strategies to harness data and foster sustainable business growth in private equity.
Organic value creation focuses on a few main areas, including improving current performance (both financial and operational) of your companies, establishing a pattern of consistent growth, strengthening your organizational leadership team, and building the potential for a brighter future through product and competitive positioning. All of these are supported by and/or partially based on the data foundation you create in your companies. At exit, your buyers want to see and feel confident that the created organic value is sustainable and will endure. Data and analytics are key to proving that.
Companies that solely focus on competition will ultimately die. Those that focus on value creation will thrive. — Edward De Bono To organically create and drive value, there are a few key data priorities you should consider:
A starting point is data quality, which underpins all you will ever do and achieve with data in your organization. Achieving better-quality data is an unrelenting task, one that many organizations overlook.
Data monetization is a second priority and is also not top-of-mind for many organizations. The adage that “data is the new oil” is at least partially true, and most companies have ways and means to leverage the data they already possess to monetize and grow revenue for improved financial returns.
A third data priority is to focus on user adoption. Having ready data and elite-level analytical tools is not sufficient. You need to be sure the data and tools you have invested in are broadly used – and not just in the short term. You also need to continue to evolve and enhance both your data and your tools to grow that adoption for future success.
Data quality is a complicated topic worthy of a separate article. Let’s focus our data quality discussion on two things: trust and the process of data quality.
If you are organically growing your companies and increasing the use of and reliance upon your data, you better make sure you trust your data. The future of your analytics solutions and broad adoption across your operational management teams depend on your data being trustworthy.
That trust means that the data is accurate, consistent across the organization, timely, and involved in a process to ensure the continuing trust in the data. There is also an assumption that your data aligns with external data sources. You can measure accuracy of your portfolio company’s data in many ways, but the single best measure is going to be how your operating executives answer the question, “How much do you trust your data?”
Data quality is never stagnant. There are always new data sources, changes in the data itself, outside influences on the data, etc. You cannot just clean the data once and expect it to stay clean. The best analogy is a stream that can get polluted from any source that feeds into the stream. To maintain high data quality over time, you need to build and incorporate processes and organizational structures that monitor, manage, and own the quality of your company’s data.
One “buzzwordy” term often applied to good data governance is data stewardship – the idea being that someone within your enterprise has the authority and responsibility to keep your data of the highest quality. There are efficient and effective ways to dramatically improve your company data and to keep it of the highest quality as you grow the organization. Simply put, do something about data quality, make sure that someone or some group is responsible for data quality, and find ways to measure your overall data quality over time.
A leading equipment distributor found new revenue sources and increased competitive edge by leveraging the cloud data warehouse that Ollion built for their growing company to share data on parts availability in their industry. Using the centralized data, they can grow revenue, increase customer service levels, and have more industry leverage from data that they already owned. Read this private equity case study here.
Organic value creation can also come from creating value out of the data your portfolio companies already own. Data monetization for you can mean such options as:
Enriching your internal data – Seek ways to make your data more valuable internally. This most often comes from cross-functional data creation (e.g., taking costing data and marrying it with sales/marketing data to infer lifetime customer value). The unique view that this enriched internal data offers will often lead to better internal decision-making and will drive more profitable analytics as you grow your analytics solutions library.
Finding private value buyers – Your data, cleansed and anonymized, is highly valuable. Your suppliers will pay for access to more data and information that helps them customize their offerings and prices to create value for customers. Your own customers would pay for enhanced information about your products and services if you can add value to them in the process. Within your industry, there are many ways to anonymize and sell the data that your portfolio companies create. Finding public value buyers – Industry trade associations, consultancies, conference organizations, and the leading advisory firms are all eager to access unique insights and statistics they can use and sell to their own clients to generate competitive advantage.
Building a data factory mindset – Modern cloud data warehouse solutions make the technology to monetize your data quite easy. There are simple ways to make the data accessible and a marketplace for selling such data from each of the major cloud data warehouse vendors. The hardest part is not finding buyers or getting them the data; it is building an internal mindset that your internal data is a valuable asset that can be easily monetized.
Our firm works with many private equity clients to design, build, and implement leading analytics solutions. A consistent learning across our project work is that user adoption is a critical success factor in our work. Just because we have more accurate data, or more timely data, or more enriched data won’t necessarily increase the adoption of advanced analytical solutions in your portfolio companies. Not all of your operating executives are data driven nor are they all analytically driven. Just because they capably produce their monthly reporting package and get it to you on time does not mean they are acting on issues and opportunities that they should be able to discern from the data. Better training, organizational change techniques, internal data sharing, and many other ways can dramatically increase the speed and depth of the user adoption in your companies.
You know how to seek value when you invest. You know how to grow your companies post-close. Growing organically during your hold period will drive increased exit valuations and let you outperform your investment thesis. Focus on data quality and broad user adoption as two of your analytics priorities for strong organic value creation across your portfolio.
Contact us today to set up a complimentary private equity data whiteboarding session. Our analytics experts have a template for data monetization and data quality assessments that we can run through with you and your team.