Closing the 'digital opportunity gap'

Directors from data solutions provider SSA tell pfm how private equity firms can drive data efficiency at their portfolio companies.

Data has become a critical corporate asset. Economists estimate that by 2030, the explosion of connected and shared data – through sensors, industrial machinery, and the Internet of Things – could add US$14.2 trillion to the cumulative gross domestic product of the world’s 20 largest economies.

Today, every industry can access deep reservoirs of internally and externallygenerated data about customer behavior, product preferences and the performance of systems and processes. Unlocking the value of this data can not only empower businesses to create efficiencies, but also enhance revenue and innovate products, services and entire business models.

But all businesses are not created equal in their ability to access, analyze, and act on vast quantities of data. Many small to mid-market companies lack the size and scale to hire data scientists and other analytical talent required to optimize data’s value. How will such firms overcome the digital opportunity gap?

Fortunately, there is a solution – especially for mid-market companies owned by private equity firms. Private equity firms of all sizes – especially those with a mid-market investment strategy – should establish a shared digital platform to support portfolio company analytics and operations and embed this service in their portfolio operations teams. The PE firms would have the financial wherewithal (via management fees) and the scale to cost-effectively build the platform and capabilities for their portfolio companies.

Next Step for PE firms: building a shared digital platform

1. Identify pilot portfolio companies.
While companies with more advanced digital strategies might be more receptive to the use of advanced analytics, digital laggards may have more to gain.

2. Focus on areas that most impact portfolio companies’ performance.
For example, the initial concentration could be on sales, procuremen, or total landed costs. Ideally, these areas will be applicable across several portfolio companies for greater efficiency.

3. Assemble the right team to maximize the return on analytics
Data insights must be translated into decisions and daily operations to create value. Start with relevant industry and functional experts (revenue enhancement, supply chain, manufacturing, and so on). These leaders will then work with data scientists and tech teams to identify relevant data sources, define required talent and technology, and pilot solutions.

4. Train portfolio company talent over time to extend and scale new capabilities.
While hiring data scientists is important, developing an effective analytics capability starts with making the entire organization data-aware. Firms can offer portfolio companies training to build data-fluent leaders and cultures. Additionally, firms can equip business analysts with the analytics skills needed to maximize the business value of data.

5. Share best practices across portfolio companies.
Many PE firms hold annual meetings where portfolio company executives can transfer knowledge and stay abreast of cutting-edge developments. These forums provide an opportunity to apply best practices from individual companies across the portfolio.

Mid-market companies and their PE owners that invest in a smart, shared digital platform today will be best positioned to reap the benefits of this data-driven revolution – creating stronger performance and increasing value.