It's Time for Private Equity to Join the (4th Industrial) Revolution!
The business world is experiencing a transformational shift towards data transparency. A shift which business and thought leaders, particularly in the private equity sector, should heed. Continue reading for key insights from Chapter 4 of The Dashboard Effect and to learn how this change will shape your business strategy for 2022 and beyond.
Think back to your favorite childhood game.
Was it Trouble or checkers or a card game like solitaire or hearts?
Most games fall into one of two categories: those where you work with complete information, and those where you must rely on incomplete information.
Chess is perhaps the most iconic example of a game with complete information. Every possible move, outcome, or scenario is placed in direct view of both players. No information is withheld, and the end result is purely dependent on the player’s ability to strategize and adapt in response to the opponent’s moves.
Poker, on the other hand, is a prime example of the incomplete information framework. In it, each player is privy to a separate set of information. No player can predict the cards they’ll receive. To win, a player must hold their cards close to the vest and rely on a combination of odds, bluffs, tells, and luck.
Business is similar. Convention leans on experience, intuition, and managing which employees have access to what information. But a shift is underway toward greater transparency in business. The private equity sector in particular is driving this trend as they innovate to improve execution and rely less on the arbitrage of multiples. A primary focus of this innovation is an increased focus on “digital transformation." Unfortunately, this trendy phrase is often where the conversation stops, leaving an uncertain path to execution. Why? Because digital transformation is all encompassing, covering everything from systems integration to process automation, from cybersecurity to machine learning. So where to start? Leading firms are increasingly realizing that mobilizing data is the most accessible strategy for transforming organizations and catalyzing growth.
These insights are adapted from Chapter 4 of The Dashboard Effect, a ground-breaking book
about how companies are using data to move to the forefront of their industries.
How to play the game with complete information
Accept That the Rules Have Changed
For generations, the marketplace operated much like the game of poker. Data and information were fiercely guarded against the prying eyes of competitors. Standard operating procedures were put in place to create blind obedience in the workforce while holding employees at arm's length to avoid exposing company secrets.
But things have changed.
The American workforce today has access to more information, resources, and data in their back pockets than NASA had available at the launch of Apollo 11.
More than a third of the U.S. labor force is made up of millennials – the most connected generation in history.
The proverbial cards are on the table, and businesses must adapt to avoid obsolescence.
It's time to put away the poker chips and pull out the chess board.
New Strategies are Easy to Accept but Hard to Adopt
The principle of data transparency in business was established decades ago, but embraced by few.
Peter Drucker, dubbed by BusinessWeek magazine as “the man who invented management,” made a career of promoting transparency as a foundational ingredient for success. While his name can be found on bookshelves of executives across the country, the adoption of this principle has rarely resulted in more than lip service.
Private equity firms now face an increasingly competitive landscape. In order to succeed, convention must be set aside and innovation embraced to maintain a competitive advantage.
Data is the key to offering the transparency and visibility necessary to assess your firm’s performance. Data will expose what’s working and points of constraint to allow portco company boards and management teams to align on the company's value creation plan.
Join the Revolution
Data is increasingly viewed as the driving force behind what is now known as the 4th Industrial Revolution, a term coined by Klaus Schwab, Founder and Executive Chairman of the World Economic Forum (WEF).
Fortunately, access to the necessary technologies to compete in today’s market is becoming increasingly accessible and affordable, virtually flooding the market with innovation and new enterprise.
With the Cloud, increasing bandwidth, and 3.5 devices used on average by most people, the rapid evolution of data analytics and dashboards is already in motion.
Companies who have successfully implemented these dashboards and analytics are now equipped to:
- Put performance metrics up in lights for the organization to see.
- Create a tangible sense of shared vision between the board, management teams, and employees.
- Give executives a single pane of glass to oversee and manage the business.
The results of this revolution will be felt for decades to come, but one fact is becoming increasingly apparent. The revolutionaries of this 4th Industrial Revolution are destined to forge new ground and set the bar above their competition. Harvard Business Review has closely examined such evidence in their recent article, “The 5 Fronts of Digital Transformation in the Middle Market.”
What This Means for 2022
Data transparency is a trend to embrace.
Deloitte Private’s “2021 mid-market technology trend report” outlines a direct correlation between annual revenue and the willingness to adopt new technologies which promote employee engagement. Key findings are as follows:
Our survey responses continue to demonstrate that when an organization focuses on customer and employee engagement and also has a robust technological foundation it tends to more quickly adopt its business model to meet the needs of the marketplace.
When we look at those companies that thrived during the pandemic, it is largely those companies that leaned into technology investment early and had a sound grasp of data and how to leverage it to predict trends within their business; the lesson for leaders to consider is that cross-industry convergence often accelerates the opportunity for innovation. Organizations that understand this can proactively position themselves to deliver greater value to their customers.
If this study doesn’t convince you, consider the following statistics:
- Nearly 8/10 executives agree that harnessing all of their data would lead to a stronger business*
- 67% of North American businesses declared interest in using advanced analytics to improve business operations*
- Harvard Business Review recently labeled Data Scientist “the sexiest job of the twenty-first century.”
Private equity firms can no longer compete in this changing landscape without mobilizing the data necessary to equip their employees and managers for challenges ahead. If you’d like to see case studies of mid-market companies who have turned their data into high-value assets that drive performance, click here.
Curious to see how your portfolio can mobilize data to improve business outcomes? Blue Margin offers a no-cost consultation to help sponsored companies understand their data-readiness and opportunity to use data as a differentiator for growth and valuation. Call Senior Partner, Jon Thompson or click here to request more info.
Sources:
"2021 mid-market technology trends report" Deloitte. Published October 2021. https://www2.deloitte.com/us/en/pages/deloitte-private/articles/technology-trends-middle-market-companies-survey.html
"The 5 Fronts of Digital Transformation in the Middle Market" Harvard Business Review. Published October 19, 2021.https://hbr.org/2021/10/the-5-fronts-of-digital-transformation-in-the-middle-market
"50 Stunning Mobile Facts And Statistics" Huffington Post. Updated February 12, 2014. https://www.huffpost.com/entry/50-stunning-mobile-facts_b_4440213
"Big Data Facts For It Professionals" Webopedia. Published February 4, 2014. http://www.webopedia.com/quick_ref/important-big-data-facts-for-it-professionals
"Data Scientist: The Sexiest Job of the 21st Century" Harvard Business Review. Published October 2012 https://hbr.org/2012/10/data-scientist-the-sexiest-job-of-the-21st-century
