Portfolio Companies have become data-rich and insight-poor while Private Equity owners seek new ways to increase EBITDA and Exit Value
By John H. Bisack III, President and Managing Director
Performance Improvement Partners
Portfolio Companies readily acknowledge data is a critical commodity in today’s intensively competitive business climate. The common theme: “the more data we own, the more intelligent, “fact-based” decisions we can make.” The implication: Your Portfolio investments are on the right track to identifying the “nuggets in the noise” that will unlock increased EBITDA and Exit Value. The facts tell a different story.
PERCEPTION vs REALITY
In 2008, a Computer Economics Inc. poll found 60% of companies planned to invest in the process of Business Intelligence to better manipulate in-house data.i Yet, in early 2016, an IDC (International Data Corporation) study indicated that approximately 75% of companies accumulate vast stores of data they have no idea what to do with and/or have no hope of learning anything useful.ii The average company uses less than 10 percent of the data they collect and store, making them “data-rich and insight-poor”.
Being data-rich can actually drain EBITDA because data is not free. Data requires warehousing, electricity to power it, software to load/manage/access it and security apps to maintain its integrity. Data also has a shelf life. Studies suggest most data stored in the cloud sits untouched until the data is no longer considered timely, relevant or accurate. Despite these realities, experts predict annual data production will increase by 4,300% in the next three years alone while the average company will use less than 10 percent of the data they collect and store.iii
Generally, there are five tell-tale signs your Portfolio Company investment may be in need of a BI solution:
• Mangers spend too much time creating Excel spreadsheets
• Different departments make decisions based on different sets of data
• Budgeting and forecasting is complex and time consuming
• Data analysis and reports are not created on a single platform
• There is marginal inter-departmental data collaboration
ENTER BUSINESS INTELLIGENCE
The emergence of Business Intelligence, as a tool and a process, can help identify EBITDA growth “nuggets” right now. And, despite what you may have heard, a smartly-designed Business Intelligence application does not have to be costly or operationally disruptive.
In its simplest form, Business Intelligence automates the manipulation of mountains of data to identify business-building insights—which we call “nuggets”—into highly usable formats. Interestingly, more than half of Fortune 1000 companies believe they are already using some form of BI to generate more relevant analytics. Our past decade plus experience dealing with the Private Equity Industry indicates most Portfolio Companies have barely scratched the potential of Business Intelligence. Going forward, PE owners need to challenge their Portfolio Companies to unleash the multi-disciplinary power of analytics so that all employees can use multi-dimensional analytics stored on a single, easy access platform to collaborate with other departments to identify those fact-based insights that will ultimately deliver EBITDA.
At Performance Improvement Partners, we refer to the BI process as “Finding Nuggets in the Noise.” A process that requires the design and creation of algorithms based on the specific industry in which your Portfolio Company investment competes and the systems they employ. The insights/nuggets that can be found in the data, or the noise, are only limited by a Portfolio Company’s imagination.
Examples: Nuggets Increase EBITDA
Create Stronger Customer Engagement:
An Airline applied real-time BI in customer engagement operations to improve peak time ticket pricing, baggage and customer complaint handling, and increase the accuracy of booking and arrival information. The Airline invested $30 million in hardware, software, and personnel and realized $500+ million in increased revenues and cost savings during the next six years.
Lower Operating Costs:
A Transportation company received enhanced fueling transaction data through real-time scorecards, dashboards, and historical performance analytics, to analyze and compare current fueling transactions to optimize routes, better manage fuel costs, and make smarter purchasing decisions.
Improve Order and Stocking Efficiencies:
A highly seasonal business (60% of sales completed during a 90-day period) used BI to create an efficient and profitable redesign of the logistical and productive warehousing process to optimize profitability of stock purchase and hold periods.
Develop More Relevant Customer Loyalty Programs:
A Clothing chain used BI process to more accurately analyze current and ideal customer profiles (e.g., profitability per sale,
age, sex, geography, marital status, household size, etc.) to improve targeting and features of customer loyalty programs.
Detect and Correct Budget Deviations:
With the help of BI, a company created a Balance Scorecard which quickly detected discrepancies from annual estimated operational goals and targets set at the beginning of the year, the reason for these deviations, and how to best enable rapid correction.
Increase Sales Force Effectiveness:
A Company created a dashboard to obtain a graphical, interrelated view of sales activity metrics that suggested better allocations of sales resources.
Improve Customer Satisfaction:
A Dashboard inside a business intelligence system allowed one company to focus on more profitable customers and boost their customer satisfaction rates.
NEXT STEPS: FINDING NUGGETS IN THE NOISE
As a number of Private Equity owners have already discovered, a properly-designed business intelligence solution can help your Portfolio Companies transform the data they already collect and store into improved fact-based insights into their business and to better understand their most profitable customers. Insights, when managed intelligently, almost always lead to increased EBITDA and exit value.
PIP provides technology solutions to almost 200 Private Equity Firms and their Portfolio Companies, so we have heard all the excuses. “My Portfolio Company management is resistant to change”, “Business Intelligence will require a wholesale change in business process”, “The customization of analytics will be cost and time-consuming”. None of the above need be true. Finding “Nuggets in the Noise” will help any company that already collect data work more effectively and efficiently. The key is to partner with the right technology advisor. Make sure the organization you select has managing partners with successful company operating experience, a market-proven record of 24/7 project support, and a reputation for efficiency and value.
i “Business Intelligence: Bright Spot in IT Investment.” Computer Economics, Research Byte, (2008).
ii White, Sarah K. “Study Reveals That Most Companies Are Failing At Big Data.” CIO (2015).
iii Marr, Bernard. “Big Data Overload: Why Most Companies Can’t Deal With The Data Explosion.” Forbes (2016). P.1.