BI and data visualization capabilities for holding companies

How to improve the quality of decisions made by external managers? How can BI help? We will answer these and other questions and show by the example of a real case what improvements can occur due to the implementation of Business Intelligence.

Quite often, a single team needs to manage or oversee and participate in critical aspects of managing multiple companies.

For example:

In holdings and conglomerates, both large and medium-sized, management is divided by industry. Separate management companies may be involved or created in the process.

And also:

In direct private investment funds (PE funds) that have developed in Russia over the last 10-15 years. After investing in a company, they gain access to its data and partial or full control, depending on the stake.

In PE funds, where companies are allocated to directors and associates. Often, those who were involved in the deal continue to lead the company afterward.

Or in family offices, when it's necessary to manage, at the ownership level, a specific shareholder's interest in several major companies.In a family office, specialization is even more limited. The head of the office and their team need to address all issues for their employer: from mining assets to marketing agencies.

There are also serial entrepreneurs who have launched several businesses and simultaneously participate in their management at different levels of involvement.A serial entrepreneur and their team of assistants must keep a pulse not only on the main asset at the moment but also not lose sight of what is happening in other projects.

All of these, in one way or another, are independent decision-making centers with a mandate to create additional value through these decisions.

Let's call the managing entity the portfolio company, and the managed entity the external manager.

In all these structures, the exchange of information between the portfolio company and external managers should occur on a weekly or monthly basis. The more qualitative and timely this exchange happens, the more opportunities the external manager has to help their company, ceteris paribus (or caeteris paribus - "assuming all other conditions remain the same").

Thus, we get the following curve:

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Over time, additional detailed information no longer improves the quality of decisions, but the point at which this tipping occurs depends on the professionalism of the external team.

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There is a presumption that for some advanced analytics teams that are emerging now, the curve of decision-making quality will increase exponentially. Professionalism and the ability to work with data allow for qualitative improvement with each new data input. In other words, the more data (including big data), the better the decisions become.

At what point are most external managers currently? Not at a high level, if viewed from the perspective of the potential.

For example, how is information typically exchanged between a private equity (PE) fund and its portfolio company?

Approximately once a month, the CEO (who is likely also the founder and owner) has a call or meeting with the PE fund team. It may happen more frequently if necessary, for instance, in the case of poor actual performance against the plan. During the meeting, they review available results for key indicators - the trio being EBITDA, revenue, working capital, as well as sector-specific metrics.

Fascinating fact. Let's say it's mid-April today, which means that at best, data for March will be available. It turns out that it's considered completely normal to discuss and draw conclusions based on data from a month ago. This happens because the month-end closing by the accounting department takes at least 2 weeks after the end of the calendar month. And this is a natural process. Working capital items, in particular, take a long time to close, as they depend on receiving closing documents from counterparts.

How can Business Intelligence (BI) help in the initial version?

On one hand, not much. Counterparts won't start sending invoices and supporting documents just because your analytics have improved. In other words, the preparation of management reporting won't speed up significantly.

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But what if we allow ourselves to look not only at management reporting?

While finances are crucial as they aggregate all the company's data, other inputs are also important in management.

For instance, revenue and its detailed analytics compared to the plan could be available on a daily basis. Such analytics can provide a more comprehensive and, most importantly, timely understanding of the challenges facing the company than internal reporting alone.

Let's assume that revenue drops by 10%, and this is evident from the reports. When verbally asked "what is the reason," there might be a verbal response in a meeting that networks have started purchasing less. Or a slide might be presented showing that revenue from networks is indeed decreasing. "Networks are networks - there's nothing you can do about it."

But with a more detailed and interactive report, we could see that only one specific network is declining. In this network, promotions weren't successful, or a non-competitive price was offered (again due to a lack of analysis at the appropriate level). Or perhaps only one or two SKUs were represented, and a competitive SKU appeared, taking part of the revenue. Maybe, by examining the situation, it becomes clear that management didn't invest in this particular SKU, allowing competitors to offer a better option.

By finding this cause, there is an opportunity to gain new insights and learn a lesson from this case for both the management team and external managers. This lesson cannot be learned from management reporting alone.

Another example is monitoring key operational and financial KPIs based on accepted business initiatives.For instance, private equity funds, being financial professionals, see that the portfolio company needs to reduce the overall level of working capital and maintain it at this level. The management takes on the task, but since this initiative may be remembered every two months, progress on it goes correspondingly slowly.

This example is based on a real case. The founder of QompaX, formerly a vice president in the fund, supervised a company where such an initiative was from the fund. After using an unsuccessful method of email and Excel mixed with meetings, he incorporated BI data visualization capabilities: a weekly updated report was set up that vividly showed the current situation. And magic happened: working capital started to decrease. In the end, it was possible to reduce it by more than 190 million rubles - funds that were unnecessarily tied up in the company's working capital.

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At the same time, what happens if we scale this experience? If we implement such analytics across all portfolio companies?

From a purely technical standpoint, there is the possibility of viewing key indicators of all companies on a single screen:

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By the way, this also frees up resources within external management: now there is less need to reformat received data into more presentable and visual formats, as well as to spend time requesting additional data.

In other words, having detailed analytics on a daily basis for several portfolio companies changes the fund's workflow structure: serious issues are identified more quickly, and more time becomes available for finding solutions. For example, if we see early on that revenue is dropping due to the failure of one SKU with a major counterparty, we can start looking for an alternative client as a replacement.

This accelerates the speed of reacting to company results, now taking two weeks instead of two months. By mid-month, the monthly trend becomes clear: how much it lags behind the plan, the previous year, and the previous month; which markets currently pose the biggest challenges; and whether business initiatives across the entire portfolio of companies are being executed. Now all of this can be clearly seen.

The purpose of communication with portfolio companies changes: significantly less time is spent obtaining the necessary data and in meetings to review results, as you have already been monitoring them. Most importantly, more time remains for finding solutions.

Now, the information field of portfolio companies and external management teams becomes unified. If previously data was filtered and underwent internal control, now everyone has access to one set of data. Even public companies cannot boast such transparency with their investors.

As a result, the quality of planning and budgeting changes both within the company and in the fund.

So, what changes occur?

• The response time to poor results is reduced from two months to two weeks.
• Monitoring of business initiatives increases, consequently enhancing the probability and speed of their achievement.
• The quality of planning and overall understanding of challenges facing the portfolio company improves.
• Decisions regarding the replacement of executives and managers also improve due to the ability to track objective data.
• Investment decisions, entry into new markets, and understanding customer segments all see improvement.

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But is it necessary for the company itself?

Initially, there might be a negative attitude. However, if the entire system is correctly built and refined, management always begins to use it willingly.

Implementing at the company level requires significant efforts to embrace this tool. Initially, data may not align, or additional training on tool usage may be required, but overall, within 2 or 3 months, most people begin to appreciate BI and use it for decision-making.

However, it's essential not to forget about process engineering. For a better ROI on BI implementation, it's certainly better to know the answers to questions like:

• What specific decisions will be made based on the data?
• Who will be responsible for decision-making and subsequent steps in achieving results?

When the fund or holding team receives the data, these processes are essentially outlined and occur somewhat automatically. At the company level, there may sometimes be a lack of understanding about who should monitor specific metrics and what actions to take if they are not in order. In an extreme case, there might be reports and all KPIs, but no one assigned responsibility for each metric.

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What is important to understand about BI?

Communication:At this stage, BI is a tool for automatic communication, communicating precisely where the company stands in detailed coordinates.

"Innovations happen for many reasons, including greed, ambition, conviction, chance, natural disasters, mistakes, and despair. But one force seems to facilitate the process more than others: the better the communication, the faster the changes occur." (Quote translated from James Burke's book "Connections")

Value Creation:Having more complete and timely data allows management to create value faster and more effectively.

Action is Required:In BI, technology is just the first half. The second half should focus on implementation, taking into account changes in processes within the company and the fund. Without this, achievable transformative results are impossible.

Technically Easier Than Before:‍

Yes, it is crucial to know that you can connect and retrieve data from 90% of accessible sources. Technically, in terms of engineering, there are no barriers to data.

Not only has it become technically possible, but the timelines are now shorter: it takes about 2 weeks from connection to the first visualizations.